A concentrated US-focused portfolio with strong historic returns and moderate risk

Report created on Dec 19, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

The portfolio is predominantly composed of two ETFs, with a 60% allocation to the Vanguard S&P 500 ETF and 40% to the Schwab U.S. Dividend Equity ETF. This composition heavily favors large-cap US equities, offering exposure to a broad range of sectors within the US market. While this setup aligns well with a balanced risk profile, it lacks diversification across different asset classes and geographic regions. To enhance diversification, consider incorporating additional asset classes like bonds or international equities, which can help mitigate risks associated with market volatility.

Growth Info

Historically, this portfolio has delivered a strong Compound Annual Growth Rate (CAGR) of 12.94%, which is impressive and suggests robust returns over time. However, it has also experienced a significant maximum drawdown of -33.6%, indicating vulnerability during market downturns. Comparing this to typical benchmarks, the portfolio has performed well, but the drawdown highlights the importance of diversification. Consider strategies to reduce potential losses, such as diversifying into less correlated assets or implementing tactical asset allocation.

Projection Info

The Monte Carlo simulation, a method using historical data to predict future outcomes, shows promising results for this portfolio. With 1,000 simulations, the median (50th percentile) projection suggests a potential growth of 398.61%. Most simulations indicate positive returns, with an annualized return of 13.45%. However, it's crucial to remember that these projections rely on past data and can't guarantee future performance. To prepare for varying market conditions, consider stress-testing your portfolio against different economic scenarios and adjusting allocations as needed.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, with a staggering 99.56% allocation, and a negligible 0.44% in cash. This concentration in equities can lead to high volatility, especially during market downturns. While stocks offer growth potential, adding bonds or other fixed-income securities can provide stability and reduce risk. A more balanced asset class distribution may align better with a truly balanced risk profile, offering a smoother ride through market fluctuations.

Sectors Info

  • Technology
    24%
  • Financials
    16%
  • Health Care
    13%
  • Consumer Discretionary
    11%
  • Industrials
    9%
  • Consumer Staples
    9%
  • Telecommunications
    7%
  • Energy
    7%
  • Basic Materials
    2%
  • Utilities
    2%
  • Real Estate
    1%

Sector allocation reveals a significant concentration in technology at 24.07%, followed by financial services and healthcare. This focus on tech can lead to higher volatility, especially during periods of regulatory changes or interest rate hikes. While the sector mix aligns with common benchmarks, consider diversifying into underrepresented sectors like utilities or real estate to reduce sector-specific risks. A more balanced sector distribution can enhance resilience against sector-specific downturns.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

The portfolio is almost entirely concentrated in North America, with a staggering 99.38% allocation. This geographic bias limits exposure to international markets, which can offer diversification benefits and opportunities for growth. By including more international equities, you can reduce reliance on the US market and potentially benefit from growth in other regions. Consider exploring emerging markets or developed regions outside North America to enhance geographic diversification.

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.

The portfolio's current allocation could benefit from optimization using the Efficient Frontier, which seeks the best possible risk-return ratio. While the portfolio has performed well, optimizing asset weights can further enhance efficiency. This process involves adjusting the proportions of existing assets to achieve the highest expected return for a given level of risk. Regularly reviewing and rebalancing the portfolio can help maintain optimal efficiency and align with evolving market conditions.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.70%
  • Vanguard S&P 500 ETF 1.30%
  • Weighted yield (per year) 2.26%

The portfolio offers a respectable total dividend yield of 2.26%, with contributions from both ETFs. Dividends provide a steady income stream, which can be especially beneficial during volatile markets. The Schwab U.S. Dividend Equity ETF's higher yield of 3.7% enhances income potential. For investors seeking income, maintaining or increasing dividend-focused holdings can be advantageous. However, balancing growth and income is essential to meet long-term investment goals.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.04%

The portfolio boasts impressively low costs, with a Total Expense Ratio (TER) of just 0.04%. Low costs are a significant advantage, as they help maximize returns over the long term by reducing the drag on performance. This cost efficiency aligns well with best practices in portfolio management. Continue to monitor and evaluate fees to ensure they remain competitive, and consider cost-effective options when making adjustments or additions to the portfolio.

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