Balanced Risk Portfolio with Broad Diversification and High Correlation Among US-Centric Assets

Report created on Jul 6, 2024

Risk profile Info

4/7
Balanced
← Less risk More risk →

Diversification profile Info

4/5
Broadly Diversified
← Less diversification More diversification →

Positions

This portfolio is made up of four ETFs, with a strong emphasis on the US market. The Vanguard Total Stock Market Index Fund ETF Shares holds the largest share at 35%, followed by the Schwab U.S. Large-Cap Growth ETF at 30%, Schwab U.S. Dividend Equity ETF at 20%, and the Vanguard Total International Stock Index Fund ETF Shares at 15%. The portfolio is broadly diversified, with a focus on stocks, and a minor allocation to cash and other assets. This composition suggests a balanced approach, blending growth, and dividend-focused investments.

Growth Info

A hypothetical initial investment in this portfolio has demonstrated a solid historical performance, with a compound annual growth rate (CAGR) of 13.42%. However, the portfolio also experienced a maximum drawdown of -33.5%, indicating significant volatility during market downturns. The performance is concentrated in a few days, with 90% of returns occurring within just 33 days. This highlights the importance of staying invested to capture those critical return days, even during volatile periods.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was projected. This method uses random sampling to model the probability of different outcomes. Assuming a hypothetical initial investment, the 5th percentile projection shows an increase of 58.19%, while the median projection is 371.88%, and the 67th percentile is 533.17%. With 985 simulations showing positive returns, the portfolio's annualized return across all simulations is 13.26%, indicating a favorable forward-looking outlook.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, with an allocation of approximately 99.67%. This suggests a focus on capital appreciation, with minimal exposure to cash and other asset classes. While this concentration can lead to higher returns in a bull market, it also exposes the portfolio to greater risk during downturns. To maintain a balanced risk profile, consider diversifying into other asset classes such as bonds, which can provide stability and reduce overall portfolio volatility.

Sectors Info

  • Technology
    29%
  • Financials
    14%
  • Health Care
    12%
  • Consumer Discretionary
    11%
  • Industrials
    9%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Energy
    5%
  • Basic Materials
    3%
  • Real Estate
    2%
  • Utilities
    2%

The portfolio is diversified across several sectors, with a notable emphasis on technology, which constitutes 29.34% of the allocation. Other significant sectors include financial services, healthcare, and consumer cyclicals. While this sector diversification can mitigate risk, the heavy concentration in technology could lead to increased volatility if the sector underperforms. To enhance sector diversification, consider rebalancing the portfolio to ensure no single sector dominates the allocation, thus reducing sector-specific risk.

Regions Info

  • North America
    86%
  • Europe Developed
    6%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

Geographically, the portfolio is predominantly focused on North America, making up 85.81% of the allocation. This strong regional bias towards the US market could leave the portfolio vulnerable to domestic economic fluctuations. The remaining allocation is spread across Europe, Asia, and other regions, but in relatively small percentages. To achieve a more globally diversified portfolio, consider increasing exposure to international markets, which can provide additional growth opportunities and reduce geographic risk.

Redundant positions Info

  • Schwab U.S. Large-Cap Growth ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    Schwab U.S. Dividend Equity ETF
    High correlation

The portfolio exhibits high correlation among its US-centric assets, particularly between the Schwab U.S. Large-Cap Growth ETF, Vanguard Total Stock Market Index Fund ETF Shares, and Schwab U.S. Dividend Equity ETF. This high correlation suggests that these assets tend to move in the same direction, reducing the diversification benefits. To enhance diversification, consider reducing exposure to overlapping assets and incorporating investments with lower correlations, which can help smooth out returns and lower overall portfolio risk.

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.

To optimize the portfolio, focus on reducing high correlations among US-centric assets. This will enhance diversification and potentially improve risk-adjusted returns. Consider reallocating investments to include more diverse asset classes, such as bonds, to achieve a more balanced risk profile. Moving along the efficient frontier allows the investor to adjust the portfolio towards higher risk and potential return or a more conservative stance. Before optimizing, ensure that the portfolio's current structure aligns with the investor's risk tolerance and financial goals.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.40%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.70%

The portfolio's dividend yield stands at 1.7%, with the Schwab U.S. Dividend Equity ETF contributing the highest yield at 3.4%. This indicates a moderate focus on income generation. While dividends can provide a steady income stream, the overall yield is modest. To increase the portfolio's income potential, consider reallocating towards higher-yielding assets or increasing the weight of dividend-focused investments. However, ensure that this does not compromise the overall growth potential or risk profile of the portfolio.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.05%

The portfolio's total expense ratio (TER) is a low 0.05%, reflecting cost-effective management. The individual ETFs have expense ratios ranging from 0.03% to 0.08%, which is favorable compared to actively managed funds. Low costs are crucial in maximizing net returns over time. To maintain this advantage, continue focusing on low-cost investment options. Regularly review the expense ratios of current holdings and consider switching to cheaper alternatives if available, ensuring that the portfolio remains financially efficient.

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