Balanced Cautious Portfolio with Moderate Diversification and Overlapping Equity ETFs

Report created on Jun 23, 2024

Risk profile Info

3/7
Cautious
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio is made up of three ETFs, with a significant portion, 80%, allocated to equity-focused funds. The remaining 20% is in bonds. This composition indicates a moderately cautious approach, balancing growth potential with some stability through bonds. The equity allocation is split between two Fidelity ETFs, which might lead to some overlap. Diversifying further could enhance stability and growth potential. Consider reviewing the equity allocation to ensure it aligns with the investment goals and risk tolerance, potentially exploring additional asset classes for better diversification.

Growth Info

Historically, this portfolio has shown a commendable CAGR of 11.11%, suggesting strong growth over time. However, it's important to note the max drawdown of -29.81%, which indicates that during market downturns, the portfolio experienced significant declines. This highlights the need for a balanced risk approach. A high CAGR is promising, but the potential for substantial drawdowns suggests a need for caution. To mitigate this, consider strategies to protect against downturns, such as diversifying further or incorporating defensive assets.

Projection Info

Using a Monte Carlo simulation, which runs numerous scenarios to assess potential future outcomes, the portfolio's future looks promising. With a 50th percentile return of 237.21% and 67th percentile at 322.31%, there's a strong chance for growth. However, the 5th percentile at 43.78% shows downside risk. This simulation assumes a hypothetical initial investment and provides a range of outcomes. While optimistic, it's crucial to remain cautious and prepared for volatility. Regularly review and adjust the portfolio to align with changing market conditions and personal financial goals.

Asset classes Info

  • Stocks
    80%
  • Bonds
    20%
  • Cash
    1%

The portfolio is primarily composed of stocks, making up nearly 80% of the allocation, with bonds at 20%. This indicates a growth-oriented approach with some stability from bonds. The high stock allocation suggests potential for returns but also increased risk. It's essential to consider whether this allocation aligns with the investor's risk tolerance and financial goals. To reduce risk, consider increasing the allocation to bonds or other lower-risk asset classes, ensuring a more balanced approach that can better withstand market fluctuations.

Sectors Info

  • Technology
    24%
  • Financials
    13%
  • Health Care
    9%
  • Consumer Discretionary
    8%
  • Industrials
    7%
  • Telecommunications
    5%
  • Consumer Staples
    4%
  • Energy
    3%
  • Basic Materials
    2%
  • Real Estate
    2%
  • Utilities
    2%

The sector allocation is heavily tilted towards Technology at 24.36%, followed by Financial Services and Healthcare. This concentration in a few sectors could lead to increased volatility, especially if those sectors face downturns. While investing in growth sectors like Technology can yield high returns, it's crucial to ensure a balanced sector allocation to mitigate risks. Consider spreading investments across more sectors to reduce dependency on a few industries, providing a cushion during sector-specific downturns and potentially stabilizing returns.

Regions Info

  • North America
    69%
  • Europe Developed
    8%
  • Japan
    2%
  • Australasia
    1%

Geographically, the portfolio is heavily weighted towards North America, which comprises nearly 69% of the allocation. This concentration poses a risk if the North American markets face economic challenges. While North America offers robust growth opportunities, it's essential to diversify geographically to mitigate regional risks. Expanding exposure to other regions, such as Europe or Asia, could provide a more balanced global perspective, reducing reliance on any single market and enhancing the portfolio's resilience against localized economic downturns.

Redundant positions Info

  • Fidelity Global Quality Income UCITS ETF Inc
    Fidelity UCITS SICAV - Fidelity US Quality Income UCITS ETF
    High correlation

The equity ETFs in the portfolio, specifically the two Fidelity funds, show a high correlation. This means they tend to move in the same direction, reducing the diversification benefits. While having some correlated assets is normal, excessive overlap can increase risk without adding value. It's important to assess whether these correlated assets align with the overall investment strategy. Consider replacing one with a less correlated asset to enhance diversification, potentially improving risk-adjusted returns and providing better protection against market volatility.

Risk vs. return

This chart shows the Efficient Frontier, calculated using your current assets with different allocation combinations. It highlights the best balance between risk and return based on historical data. "Efficient" portfolios maximize returns for a given risk or minimize risk for a given return. Portfolios below the curve are less efficient. This is informational and not a recommendation to buy or sell any assets.

Click on the colored dots to explore allocations.

Before diving into optimization, it's essential to address the high correlation between the equity ETFs, which limits diversification benefits. Once this is resolved, the investor can explore the efficient frontier to balance risk and return. Moving up the frontier increases risk and potential returns, while moving down reduces risk but also potential gains. By carefully adjusting the asset mix, investors can achieve a portfolio that aligns with their risk tolerance and financial goals, ensuring an optimal balance between growth and stability.

Dividends Info

  • iShares Global Aggregate Bond UCITS Dist 1.50%
  • Fidelity Global Quality Income UCITS ETF Inc 1.80%
  • Fidelity UCITS SICAV - Fidelity US Quality Income UCITS ETF 0.50%
  • Weighted yield (per year) 1.22%

The portfolio's overall dividend yield is 1.22%, with contributions from all three ETFs. This yield provides a modest income stream, which can be attractive for investors seeking regular income. However, the yield is relatively low, suggesting a focus on growth rather than income. If generating income is a priority, consider increasing exposure to higher-yielding assets. Balancing growth and income needs is crucial, so regularly reviewing dividend contributions and adjusting allocations can help achieve desired financial outcomes.

Ongoing product costs Info

  • iShares Global Aggregate Bond UCITS Dist 0.10%
  • Fidelity Global Quality Income UCITS ETF Inc 0.45%
  • Fidelity UCITS SICAV - Fidelity US Quality Income UCITS ETF 0.25%
  • Weighted costs total (per year) 0.30%

The portfolio's total expense ratio (TER) is 0.3%, indicating that costs are relatively low. This is beneficial as lower costs mean more of the returns stay in the investor's pocket. The iShares Global Aggregate Bond UCITS Dist has the lowest cost at 0.1%, while the Fidelity Global Quality Income UCITS ETF Inc is the highest at 0.45%. Keeping investment costs low is a smart strategy, as high fees can erode returns over time. Regularly reviewing and optimizing costs can ensure the portfolio remains efficient and cost-effective.

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