Balanced Risk Portfolio with Broad Diversification and Overlapping Technology Exposure

Report created on Jul 8, 2024

Risk profile

  • Secure
    Speculative

The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.

Diversification profile

  • Focused
    Diversified

The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.

Positions

The portfolio is heavily weighted towards ETFs, with the Vanguard S&P 500 ETF making up nearly 70% of the total. This indicates a strong focus on large-cap U.S. stocks. The presence of the Vanguard Total International Stock Index Fund ETF Shares adds some international exposure, while the Invesco QQQ Trust and Invesco NASDAQ 100 ETF further diversify into tech-heavy indices. This composition suggests a balanced approach, though it leans heavily on U.S. equities, particularly in the technology sector.

Growth Info

Historically, this portfolio has shown a robust performance, with a CAGR of 14.49%. This suggests that the portfolio has been successful in generating returns over time. The maximum drawdown of -26.2% indicates some exposure to market volatility, which is expected given the significant allocation to equities. Despite this, the portfolio has managed to recover, demonstrating resilience. It's important to note that a small number of days contribute to the majority of returns, highlighting the importance of staying invested during volatile periods.

Projection Info

Utilizing a Monte Carlo simulation with 1,000 iterations, the portfolio shows promising forward projections. The 50th percentile suggests a potential growth of 497.89%, while the 67th percentile projects an even higher return. With an annualized return of 15.27% across simulations, these projections indicate a positive outlook. Monte Carlo simulations provide a range of possible outcomes by considering different market scenarios, offering a probabilistic insight into future performance. This reinforces the potential for continued growth, though it also underscores the inherent uncertainty in investing.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly invested in stocks, accounting for over 99% of the total allocation. This high concentration in equities suggests a focus on growth, but it also increases exposure to market volatility. A small allocation to cash provides minimal liquidity, while other asset classes are virtually negligible. This composition is suitable for investors seeking capital appreciation, but it may not align with those looking for income or lower volatility. A more balanced allocation could be considered to reduce risk and enhance stability.

Sectors Info

  • Technology
    31%
  • Financials
    13%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Telecommunications
    9%
  • Industrials
    9%
  • Consumer Staples
    6%
  • Energy
    3%
  • Basic Materials
    3%
  • Utilities
    3%
  • Real Estate
    2%

The sector allocation is diverse, with a significant tilt towards technology at over 31%. This indicates a strong belief in the growth potential of tech companies, but it also exposes the portfolio to sector-specific risks. Financial services and consumer cyclicals also feature prominently, providing some balance. However, sectors like real estate and utilities have minimal representation, which may limit defensive capabilities during downturns. A more even sector distribution could help mitigate risks associated with sector concentration and enhance overall resilience.

Regions Info

  • North America
    82%
  • Europe Developed
    8%
  • Asia Emerging
    3%
  • Japan
    3%
  • Asia
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

Geographically, the portfolio is heavily skewed towards North America, with over 81% allocation. This reflects a strong home bias, which can be beneficial given the performance of U.S. markets but may limit exposure to international growth opportunities. The remaining allocation is spread across developed and emerging markets, providing some diversification. However, regions like Latin America and Africa/Middle East have minimal representation, which could be expanded to capture potential growth. A more balanced geographic allocation could enhance global exposure and reduce regional risks.

Redundant positions Info

  • Invesco QQQ Trust
    Invesco NASDAQ 100 ETF
    High correlation

The portfolio contains highly correlated assets, particularly within the technology sector, as evidenced by the Invesco QQQ Trust and Invesco NASDAQ 100 ETF. This correlation suggests that these assets tend to move in tandem, which can limit diversification benefits. While correlation isn't inherently negative, it can increase risk if the sector underperforms. Reducing overlap in correlated assets could enhance diversification and provide a cushion against sector-specific downturns. A focus on uncorrelated assets can strengthen the portfolio's resilience.

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 optimization chart suggests focusing on reducing overlapping assets before considering further optimization. By addressing the high correlation between certain assets, the portfolio can achieve greater diversification benefits. Moving along the efficient frontier, one can adjust the portfolio to either increase risk for potentially higher returns or reduce risk for more stability. This involves reallocating assets to balance growth and risk according to individual preferences. Addressing correlation issues first will enhance the portfolio's efficiency and set the stage for future optimization.

Dividends Info

  • Invesco QQQ Trust 0.60%
  • Invesco NASDAQ 100 ETF 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 2.90%
  • Weighted yield (per year) 1.46%

The portfolio offers a moderate dividend yield of 1.46%, with the Vanguard Total International Stock Index Fund ETF Shares contributing the highest yield at 2.9%. This suggests a secondary focus on income generation, though growth remains the primary objective. Dividends can provide a steady income stream and help offset volatility, but they are not the main driver of returns in this portfolio. Investors seeking higher income may consider increasing exposure to dividend-yielding assets, while those focused on growth may find the current yield satisfactory.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • Invesco NASDAQ 100 ETF 0.15%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.06%

The portfolio's total expense ratio is 0.06%, indicating low costs associated with maintaining the investments. This is advantageous as it allows more of the returns to be retained by the investor. Low-cost investing is a key principle for maximizing returns over time. The individual ETFs have varying expense ratios, with Vanguard S&P 500 ETF being the most cost-effective. Keeping costs low is crucial for long-term success, and this portfolio does well in minimizing expenses. It's important to continue monitoring costs to ensure they remain competitive.

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