A balanced portfolio heavily invested in the S&P 500 with minimal diversification
Report created on Jan 16, 2025Risk profile
4/7
Diversification profile
1/5
Positions
-
VO Vanguard S&P 500 ETF
VOO - US9229083632 80.00% -
SG iShares® 0-3 Month Treasury Bond ETF
SGOV - US46436E7186 20.00%
The portfolio is heavily weighted towards the Vanguard S&P 500 ETF, comprising 80% of the total allocation, while the remaining 20% is in the iShares 0-3 Month Treasury Bond ETF. This results in a single-focused diversification classification, primarily emphasizing equities with a minor allocation to short-term bonds. Such a composition aligns with a common benchmark for balanced portfolios, but it lacks exposure to other asset classes like international stocks or alternative investments. To enhance diversification, consider incorporating additional asset types to balance potential risks and returns more effectively.
Growth
Historically, the portfolio has demonstrated robust performance with a CAGR of 14.53%. This growth rate indicates strong returns over time, surpassing many common benchmarks. However, it experienced a maximum drawdown of -21.18%, highlighting vulnerability during market downturns. The concentration in the S&P 500 contributes to both its high returns and significant drawdowns. While past performance is promising, it's crucial to remember that it doesn't guarantee future success. To mitigate potential risks, consider strategies that could cushion the impact of future market volatility.
Projection
Forward projections using Monte Carlo simulations show a wide range of potential outcomes, with a median expected return of 282.86%. Monte Carlo analysis uses historical data to simulate future returns, offering insights into possible performance scenarios. Despite a positive outlook, it's essential to understand that these projections are based on historical trends and assumptions, which may not fully capture future market conditions. To prepare for various scenarios, consider stress-testing the portfolio against different economic conditions.
Asset classes
- Stocks 80%
- Cash 20%
The portfolio's asset class distribution is predominantly in equities (approximately 80%) with a smaller allocation to cash equivalents (20%). This allocation provides significant exposure to stock market growth while maintaining a buffer of liquidity through treasury bonds. Compared to typical balanced portfolios, this mix is more equity-heavy, which can amplify both potential gains and losses. To align with a balanced investment strategy, consider introducing fixed income or alternative assets to achieve a more diversified risk-return profile.
Sectors
- Technology 26%
- Financials 11%
- Consumer Discretionary 9%
- Health Care 8%
- Telecommunications 7%
- Industrials 6%
- Consumer Staples 5%
- Energy 3%
- Utilities 2%
- Real Estate 2%
- Basic Materials 1%
Sector allocation is heavily tilted towards technology, with 26.12% of the portfolio invested in this sector. Other notable sectors include financial services, consumer cyclicals, and healthcare. This concentration in technology can lead to higher volatility, especially during periods of interest rate changes or regulatory shifts. While the sector composition mirrors the broader market, diversifying into sectors with lower representation could reduce sector-specific risks. Consider rebalancing to achieve a more even distribution across various sectors.
Regions
- North America 80%
Geographically, the portfolio is predominantly focused on North America, with 79.55% exposure, and minimal allocations to Europe and Asia. This heavy North American concentration can limit the benefits of geographic diversification, potentially increasing vulnerability to regional economic shifts. Common benchmarks often include a more balanced global exposure. To enhance diversification, consider increasing allocations to international markets, which can help mitigate regional risks and capture global growth opportunities.
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 current portfolio composition can be optimized using the Efficient Frontier to improve the risk-return balance. The Efficient Frontier represents the set of portfolios that offer the highest expected return for a given level of risk. By adjusting asset weights, the portfolio could achieve a more optimal position on this frontier. However, it's essential to remember that optimization is based on historical data, which may not reflect future market conditions. Regularly revisit the portfolio's allocation to ensure it remains aligned with changing market dynamics.
Dividends
- iShares® 0-3 Month Treasury Bond ETF 5.10%
- Vanguard S&P 500 ETF 1.20%
- Weighted yield (per year) 1.98%
The portfolio's dividend yield stands at 1.98%, with contributions from both the treasury bond ETF (5.1%) and the S&P 500 ETF (1.2%). Dividends provide a steady income stream, which can be particularly appealing for income-focused investors. However, the overall yield is moderate compared to income-focused portfolios. If income generation is a priority, consider increasing exposure to higher-yielding assets or dividend-focused funds to boost the portfolio's yield.
Ongoing product costs
- iShares® 0-3 Month Treasury Bond ETF 0.07%
- Vanguard S&P 500 ETF 0.03%
- Weighted costs total (per year) 0.04%
The portfolio's total expense ratio (TER) is impressively low at 0.04%, with the Vanguard S&P 500 ETF at 0.03% and the iShares Treasury Bond ETF at 0.07%. Low costs are advantageous as they enhance net returns over time, aligning well with best practices for cost efficiency. Maintaining this low-cost structure is beneficial for long-term performance. Regularly review the portfolio to ensure that costs remain minimal and consider switching to similarly low-cost alternatives if necessary.
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