Balanced portfolio with high US equity concentration and moderate dividend yield

Report created on Jan 13, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

This portfolio consists of two ETFs, the Schwab U.S. Dividend Equity ETF and the Vanguard S&P 500 ETF, each making up 50% of the total allocation. The portfolio is heavily invested in U.S. equities, with minimal exposure to other asset classes or regions. Such a concentration can limit diversification, which is a key strategy for managing risk. A more balanced composition might include bonds, international stocks, or alternative investments to mitigate risk and improve stability.

Growth Info

Historically, the portfolio has performed well, with a compound annual growth rate (CAGR) of 12.91%, which is impressive. However, it has also experienced a significant maximum drawdown of -33.52%, indicating vulnerability to market downturns. Comparing this to common benchmarks, the growth is strong, but the risk is evident. It's important to remember that past performance does not guarantee future results, and diversification could help reduce future volatility.

Projection Info

Using Monte Carlo simulations, which assess potential future outcomes based on historical data, the portfolio's projected annualized return is 14.02%. This suggests strong potential growth, but with inherent uncertainties. The simulations show a wide range of outcomes, with the 5th percentile at 81.17% and the 67th percentile at 623.78%. It's crucial to understand that these projections are not predictions and should be used as one of many tools in decision-making.

Asset classes Info

  • Stocks
    99%
  • Cash
    1%

The portfolio is heavily weighted towards stocks, comprising nearly 99.5% of its allocation, with a negligible cash component. This single asset class focus increases exposure to equity market risks. While stocks can offer high returns, they also come with volatility. Introducing other asset classes, such as bonds or commodities, could enhance diversification and potentially provide more stable returns over time.

Sectors Info

  • Technology
    22%
  • Financials
    17%
  • Health Care
    13%
  • Consumer Discretionary
    11%
  • Consumer Staples
    10%
  • Industrials
    9%
  • Energy
    8%
  • Telecommunications
    7%
  • Basic Materials
    2%
  • Utilities
    1%
  • Real Estate
    1%

Sectorally, the portfolio is diversified across several industries, with significant allocations in technology, financial services, and healthcare. However, the concentration in these sectors can lead to higher volatility, especially if any of these industries face downturns. A more balanced sector allocation could help manage risk better, especially considering potential economic cycles that affect different sectors differently.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly concentrated in North America, with over 99% exposure. This lack of international diversification can increase vulnerability to regional economic downturns and limit opportunities from global growth. Considering broader geographic exposure, such as to emerging markets or developed Europe and Asia, can offer diversification benefits and capture global economic trends.

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 portfolio's current asset allocation could potentially be optimized using the Efficient Frontier, which seeks the best possible risk-return ratio. This involves adjusting the weights of existing assets to improve efficiency. However, it's important to note that optimization focuses on risk-return trade-offs and may not fully address diversification needs. Regularly reviewing and rebalancing can help maintain an optimal portfolio structure.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.70%
  • Vanguard S&P 500 ETF 1.30%
  • Weighted yield (per year) 2.50%

The portfolio's dividend yield stands at 2.5%, with the Schwab U.S. Dividend Equity ETF yielding 3.7% and the Vanguard S&P 500 ETF yielding 1.3%. This yield can provide a steady income stream, which is beneficial for investors seeking regular cash flow. However, focusing solely on dividends might limit growth potential. Balancing between dividend and growth stocks could enhance both income and capital appreciation.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • 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%, which is beneficial for long-term returns as it minimizes costs. Low fees are advantageous because they help retain more of the portfolio's gains. It's important to regularly review these costs to ensure they remain competitive, as lower-cost alternatives could enhance net returns over time.

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