A balanced portfolio with heavy US equity focus and limited sector diversity

Report created on Jan 3, 2025

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 heavily weighted towards US equities, with a significant 67% allocation to the Vanguard Total Stock Market Index Fund ETF. This high concentration in a single ETF suggests a strong focus on broad US market exposure. The remaining assets are split equally among three other equity ETFs, each holding 11%. Compared to typical balanced portfolios, this composition reflects lower diversification, as it lacks exposure to other asset classes like bonds or international equities. To enhance diversification, consider incorporating additional asset classes or geographic regions to reduce reliance on US equities and potentially lower portfolio risk.

Growth Info

Historically, this portfolio has delivered a strong Compound Annual Growth Rate (CAGR) of 15.4%, indicating robust growth over time. However, it has also experienced a maximum drawdown of -25.02%, reflecting significant declines during market downturns. This volatility is worth noting, as it may impact investors with lower risk tolerance. Comparing this performance to a benchmark, it aligns with typical US equity market returns. While past performance is no guarantee of future results, maintaining a balanced approach can help mitigate potential losses while capitalizing on growth opportunities.

Projection Info

Monte Carlo simulations, which use historical data to project future outcomes, indicate a range of potential portfolio performances. With 1,000 simulations, the portfolio shows a 50th percentile outcome of 739.57% growth. However, it's important to remember that these simulations rely on historical data and assumptions, which may not predict future market conditions accurately. Despite this, the high number of simulations with positive returns (998 out of 1,000) suggests a favorable outlook. To prepare for various scenarios, consider stress-testing the portfolio against different economic conditions.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly invested in stocks, with a staggering 99.81% allocation, leaving only a minuscule portion in cash. This heavy stock concentration suggests a strong growth focus but also increases exposure to market volatility. Compared to more diversified benchmarks, which often include bonds or alternative assets, this allocation lacks balance. To enhance stability and reduce risk, introducing a mix of asset classes could provide a buffer during market downturns and contribute to a smoother return trajectory over time.

Sectors Info

  • Technology
    30%
  • Financials
    14%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Industrials
    10%
  • Telecommunications
    9%
  • Consumer Staples
    6%
  • Energy
    4%
  • Basic Materials
    3%
  • Real Estate
    2%
  • Utilities
    2%

Sector-wise, the portfolio is notably concentrated in technology (30.08%), followed by financial services (13.84%) and consumer cyclicals (10.92%). This tech-heavy allocation may lead to higher volatility, especially during interest rate fluctuations. Compared to benchmarks, this composition shows limited sectoral diversity. To mitigate potential risks, consider rebalancing to include sectors like utilities or healthcare, which can provide more stability. A broader sector exposure can help cushion the portfolio against sector-specific downturns and align it more closely with diversified market indices.

Regions Info

  • North America
    99%

Geographically, the portfolio is almost entirely concentrated in North America, with a 99.21% allocation. This heavy focus on the US market limits exposure to global opportunities and increases vulnerability to regional economic downturns. Compared to global benchmarks, which typically include a more balanced geographic distribution, this allocation is less diversified. To enhance global diversification, consider adding exposure to developed and emerging markets outside North America. This broader geographic reach can help capture growth opportunities and reduce reliance on a single economic region.

Redundant positions Info

  • Invesco S&P 500® Quality ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio features high correlation between the Invesco S&P 500® Quality ETF and the Vanguard Total Stock Market Index Fund ETF. Highly correlated assets often move in the same direction, reducing diversification benefits. This can limit the portfolio's ability to withstand market volatility, as downturns may impact these assets similarly. To improve diversification, consider replacing one of these ETFs with an asset that has a lower correlation to the rest of the portfolio. This adjustment could enhance risk management and provide a more balanced return profile.

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.

Portfolio optimization suggests that by addressing asset correlation, the portfolio could achieve a more efficient risk-return balance. The Efficient Frontier, a concept illustrating the best possible risk-return ratio, indicates potential for improvement. By reducing overlap between highly correlated assets, the portfolio could enhance diversification and achieve an expected return of 17.97% with a similar risk level. While optimization focuses on current assets, it emphasizes aligning the portfolio with an optimal risk-return profile. Regular reviews and adjustments can help maintain this balance over time.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.60%
  • Invesco NASDAQ 100 ETF 0.60%
  • Invesco S&P 500® Quality ETF 0.90%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 1.21%

The portfolio's overall dividend yield is 1.21%, which provides a modest income stream. The Avantis® U.S. Small Cap Value ETF offers the highest yield at 1.6%, while the Invesco NASDAQ 100 ETF provides the lowest at 0.6%. Dividend yields can be an important consideration for investors seeking regular income or reinvestment opportunities. While the current yield is relatively low, focusing on growth rather than income, exploring higher-yielding options or dividend-focused funds could enhance income potential without significantly altering the portfolio's risk profile.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Invesco NASDAQ 100 ETF 0.15%
  • Invesco S&P 500® Quality ETF 0.15%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.08%

The portfolio's total expense ratio (TER) is impressively low at 0.08%, with the Vanguard Total Stock Market Index Fund ETF contributing the least at 0.03%. Low costs are advantageous as they help improve net returns over time. This cost efficiency aligns well with best practices for long-term investing, where minimizing fees can significantly impact overall performance. Maintaining this low-cost structure is beneficial, but periodically reviewing the portfolio for even lower-cost alternatives or fee reductions can further optimize returns.

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