Balanced Portfolio with Broad Diversification and Strong Historical Performance but High Correlation Concerns

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

The portfolio is composed of four ETFs, with a significant focus on U.S. equities. The Vanguard Total Stock Market Index Fund ETF holds the largest share, followed by the Schwab U.S. Large-Cap Growth ETF and the Schwab U.S. Dividend Equity ETF. The Vanguard Total International Stock Index Fund ETF adds a touch of international exposure. This mix offers broad diversification across various sectors and geographies. However, the heavy U.S. focus may limit exposure to potential growth opportunities in other regions. A balanced approach is evident, but there's room to explore further diversification options to enhance risk-adjusted returns.

Growth Info

With a historical CAGR of 13.42%, the portfolio has shown strong performance over time. However, it experienced a maximum drawdown of -33.5%, indicating vulnerability during market downturns. The concentrated days that make up 90% of the returns suggest that the portfolio's performance is driven by a few key periods. This highlights the importance of maintaining a long-term perspective and not reacting to short-term market fluctuations. While the past performance is impressive, it's crucial to remember that it doesn't guarantee future results and ongoing monitoring is essential.

Projection Info

The Monte Carlo simulation, using a hypothetical initial investment, offers a forward-looking perspective. With 1,000 simulations, the median outcome suggests a potential return of 375.06%, while the 5th percentile indicates a more conservative 60.29% return. The high count of simulations with positive returns reflects a favorable outlook. However, it's important to understand that these projections are based on historical data and assumptions. They provide a range of possible outcomes, helping to set realistic expectations and guide future investment decisions. Regularly revisiting these projections can help in aligning the portfolio with evolving financial goals.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, with a minimal allocation to cash and other asset classes. This stock-heavy composition aligns with a growth-oriented strategy, offering potential for higher returns but also increased volatility. While this approach can be rewarding in a favorable market environment, it may expose the portfolio to significant risks during downturns. To manage risk, consider incorporating more diverse asset classes, such as bonds, which can provide stability and income. Striking a balance between growth and stability is key to achieving long-term financial objectives.

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%

Sector allocation reveals a strong emphasis on technology, financial services, and healthcare. These sectors have been key drivers of market growth, but their concentration also introduces sector-specific risks. While diversification across sectors is evident, the portfolio could benefit from a more even distribution to mitigate potential downturns in any single sector. Exploring underrepresented sectors, such as utilities and real estate, might offer additional stability and income potential. A well-rounded sector allocation can help smooth out returns and reduce the impact of sector-specific volatility.

Regions Info

  • North America
    86%
  • Europe Developed
    6%
  • Asien Schwellenländer
    2%
  • Japan
    2%
  • Asien
    2%
  • Australasia
    1%
  • Afrika/Mittlerer Osten
    1%

Geographically, the portfolio is predominantly focused on North America, with limited exposure to other regions. This concentration reflects a home-country bias, which can be beneficial during periods of strong domestic market performance. However, it also limits diversification benefits and exposure to growth opportunities in emerging markets. Expanding geographic diversification can help capture potential growth in other regions and reduce reliance on the U.S. market. A more globally diversified portfolio can provide a buffer against regional economic downturns and enhance overall risk-adjusted returns.

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 assets, particularly between the Schwab U.S. Large-Cap Growth ETF, Vanguard Total Stock Market Index Fund ETF, and Schwab U.S. Dividend Equity ETF. This correlation indicates that these assets tend to move in the same direction, reducing the diversification benefits. While correlated assets can enhance returns during market upswings, they can also amplify losses during downturns. To improve diversification, consider incorporating assets with lower correlation, which can help mitigate risk and provide a more balanced return profile.

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.

Before diving into portfolio optimization, addressing the high correlation among some assets is crucial. Reducing overlap can enhance diversification benefits and improve risk-adjusted returns. Once correlation concerns are addressed, the portfolio can be optimized along the efficient frontier. Moving towards riskier investments may increase potential returns but also volatility. Conversely, shifting to more conservative assets can provide stability and reduce risk. Understanding personal risk tolerance and financial goals is key to navigating the efficient frontier and achieving a well-balanced portfolio.

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 offers a total dividend yield of 1.7%, with the Schwab U.S. Dividend Equity ETF contributing significantly at 3.4%. Dividends provide a steady income stream, which can be reinvested to enhance long-term growth. While the yield is moderate, it aligns with a balanced investment approach. To potentially increase income, explore opportunities to enhance dividend yield through a more targeted allocation to dividend-focused assets. Ensuring a balance between growth and income is crucial for achieving a sustainable and rewarding investment journey.

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 0.05%, indicating a cost-effective approach to investing. Low costs are a significant advantage, as they have a direct impact on net returns. The expense ratios of the individual ETFs are competitive, reflecting a focus on minimizing costs. Maintaining a low-cost structure is essential for maximizing long-term returns, as fees can erode gains over time. Regularly reviewing and optimizing the cost structure can help ensure that the portfolio remains efficient and aligned with financial goals.

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