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Balanced Portfolio with Low Diversity and High Correlation in U.S. Equities and Dividend Focused Assets

Report created on Nov 25, 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 primarily composed of ETFs, with a significant 50% allocation to the Vanguard S&P 500 ETF. This indicates a strong focus on large-cap U.S. equities. The rest of the portfolio is diversified across small-cap value, dividend growth, and high-income ETFs, along with a 10% investment in Realty Income Corp. While this composition leans towards a balanced approach, it lacks diversification across different asset classes. This can expose the portfolio to market volatility, particularly within the U.S. stock market. To enhance diversification, consider incorporating different asset classes like bonds or international equities.

Growth Info

Historically, the portfolio has shown a commendable compound annual growth rate (CAGR) of 17.69%, reflecting strong past performance. However, it also experienced a maximum drawdown of -12.22%, indicating vulnerability to market downturns. The concentrated performance over just 15 days suggests that returns are driven by a few strong performances, which can be risky if those days do not repeat. Maintaining a balanced risk-reward approach is crucial. Diversifying further could help mitigate potential drawdowns while maintaining growth potential.

Projection Info

Using a Monte Carlo simulation with 1,000 simulations, the portfolio shows a promising future with a median expected growth of 681.23%. The simulation suggests a high probability of positive returns, with all simulations yielding positive outcomes. This method uses random sampling to account for market volatility, offering a range of potential outcomes. Despite the optimistic projections, it's essential to remember that past performance is not always indicative of future results. Regularly reviewing and adjusting the portfolio can help align it with changing market conditions and personal financial goals.

Asset classes Info

  • Stocks
    98%
  • No data
    2%

The portfolio is heavily skewed towards stocks, comprising 98% of the total allocation. This indicates a high reliance on equity market performance, which can be volatile. While stocks offer growth potential, they also come with increased risk. Diversifying into other asset classes like bonds or commodities can provide stability and reduce overall portfolio risk. This balanced approach can help protect against market downturns and ensure a steady return over time. Consider rebalancing the portfolio to include a mix of asset classes that align with your investment objectives.

Sectors Info

  • Technology
    27%
  • Financials
    13%
  • Real Estate
    11%
  • Consumer Discretionary
    10%
  • Health Care
    9%
  • Industrials
    8%
  • Telecommunications
    7%
  • Consumer Staples
    5%
  • Energy
    4%
  • Utilities
    2%
  • Basic Materials
    2%

Sector allocation shows a strong emphasis on technology, financial services, and real estate, which together form a significant portion of the portfolio. This concentration can lead to sector-specific risks if these industries face downturns. While sector-specific investments can offer high returns, they also increase exposure to market volatility. To mitigate this, consider diversifying into underrepresented sectors such as utilities or basic materials. This can provide a buffer against sector-specific downturns, ensuring a more resilient portfolio in varying market conditions.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly concentrated in North America, with 99% of investments in this region. This lack of global diversification poses a risk if the U.S. market underperforms. While North American markets have historically been strong, relying solely on one region can lead to missed opportunities elsewhere. Expanding into international markets, such as Europe or Asia, can provide exposure to different economic cycles and growth prospects. This geographical diversification can help mitigate regional risks and enhance overall portfolio performance.

Redundant positions Info

  • Vanguard S&P 500 ETF
    JPMorgan Nasdaq Equity Premium Income ETF
    iShares Core Dividend Growth ETF
    SHP ETF Trust - NEOS S&P 500 High Income ETF
    High correlation

The portfolio exhibits high correlation among its assets, particularly between the Vanguard S&P 500 ETF, JPMorgan Nasdaq Equity Premium Income ETF, and others. This high correlation means that these assets tend to move in the same direction, reducing the diversification benefits. To improve diversification, consider replacing some of these highly correlated assets with others that have lower correlation. This can help smooth out returns and reduce overall risk, ensuring that the portfolio is better positioned to weather market fluctuations.

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.

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The portfolio's optimization chart suggests focusing on reducing asset overlap before making further adjustments. High correlation among assets indicates redundancy, which can be addressed by substituting some ETFs with less correlated alternatives. Moving along the efficient frontier can help achieve a riskier or more conservative portfolio. For a riskier approach, increase exposure to high-growth assets, while a conservative strategy would involve adding more stable, income-generating investments. This balance ensures alignment with individual risk tolerance and financial goals.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • iShares Core Dividend Growth ETF 2.10%
  • JPMorgan Nasdaq Equity Premium Income ETF 9.40%
  • Realty Income Corp 5.40%
  • SHP ETF Trust - NEOS S&P 500 High Income ETF 11.70%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 3.61%

The portfolio's dividend yield stands at a healthy 3.61%, driven by high-income ETFs and Realty Income Corp. This focus on dividend-paying assets provides a steady income stream, beneficial for investors seeking regular cash flow. While dividends can enhance returns, relying too heavily on high-yield assets can increase risk, especially if these companies face financial difficulties. Balancing dividend-paying stocks with growth-focused investments can provide both income and capital appreciation, ensuring a well-rounded portfolio.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • iShares Core Dividend Growth ETF 0.08%
  • JPMorgan Nasdaq Equity Premium Income ETF 0.35%
  • SHP ETF Trust - NEOS S&P 500 High Income ETF 0.68%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.15%

The portfolio's total expense ratio (TER) is 0.15%, which is relatively low and indicates cost-effective management. Low costs are advantageous as they help maximize net returns, especially over the long term. However, it's essential to remain vigilant about hidden costs or fees that might not be immediately apparent. Periodically reviewing the expense ratios of individual components can ensure that costs remain in check. Opting for low-cost index funds or ETFs can further enhance net returns, aligning with the goal of cost-efficient investing.

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