Balanced Portfolio with Low Diversification and High Dividend Yield for Moderate Risk Appetite
Report created on Dec 4, 2024Risk profile
4/7
Diversification profile
2/5
Positions
-
SC Schwab U.S. Dividend Equity ETF
SCHD - US8085247976 66.67% -
VT Vanguard Total Stock Market Index Fund ETF Shares
VTI - US9229087690 33.33%
The portfolio is composed of two ETFs: Schwab U.S. Dividend Equity ETF and Vanguard Total Stock Market Index Fund ETF Shares. This results in a concentrated allocation with 66.67% in the Schwab ETF and 33.33% in the Vanguard ETF. Such a composition indicates a focus on dividend income and broad market exposure. While this can offer steady returns, the low diversification might expose the portfolio to sector-specific risks. It would be beneficial to consider adding more varied asset classes to reduce potential volatility and enhance stability.
Growth
Historically, the portfolio has shown a strong performance with a compound annual growth rate (CAGR) of 12.88%. However, it has experienced a significant maximum drawdown of -33.7%, indicating vulnerability during market downturns. The high CAGR suggests robust growth potential, but the drawdown highlights the need for risk management. To mitigate such risks, it's advisable to consider a more diversified approach, potentially incorporating assets that can provide a buffer during market volatility.
Projection
Using a Monte Carlo simulation with 1,000 iterations, the portfolio shows promising forward projections. This method, which uses random sampling to predict future outcomes, indicates an annualized return of 13.92% with a high probability of positive returns. The median outcome suggests a potential growth of 429.82%, while even the lower 5th percentile projects positive returns. While these projections are encouraging, they underscore the importance of balancing optimism with caution by maintaining a diversified portfolio to manage unforeseen risks.
Asset classes
- Stocks 100%
The portfolio is heavily weighted towards stocks, with 99.87% in equities and a negligible 0.13% in cash. This allocation reflects a strong growth orientation but also suggests vulnerability to stock market fluctuations. While stock-heavy portfolios can offer higher returns, they also come with increased volatility. To achieve a more balanced risk-return profile, incorporating other asset classes such as bonds or real estate could provide stability and reduce overall portfolio risk.
Sectors
- Financials 18%
- Technology 17%
- Health Care 14%
- Consumer Discretionary 11%
- Industrials 11%
- Consumer Staples 11%
- Energy 10%
- Telecommunications 6%
- Basic Materials 2%
- Real Estate 1%
- Utilities 1%
Sector allocation within the portfolio is somewhat diversified, with significant exposure to Financial Services, Technology, Healthcare, and Consumer Cyclicals. However, the concentration in these sectors could lead to increased risk if any of them face downturns. While having exposure to leading sectors can drive growth, it’s important to ensure that no single sector dominates the portfolio. Expanding into underrepresented sectors could enhance diversification and mitigate sector-specific risks.
Regions
- North America 99%
- Europe Developed 1%
Geographically, the portfolio is heavily concentrated in North America, with 99.41% exposure, and minimal allocations to other regions. This skew towards North America could limit potential growth opportunities available in international markets. While a strong focus on North America can provide stability and familiarity, diversifying geographically could tap into emerging markets and spread risk across different economic environments. Considering global diversification could lead to a more resilient portfolio.
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 configuration leans towards a balanced risk profile, yet its low diversification suggests room for optimization. Moving along the efficient frontier, investors can adjust their risk levels by incorporating more diverse asset classes, such as bonds for a conservative tilt or additional equities for a riskier stance. Focusing on diversification and asset allocation adjustments rather than cost optimization could enhance the portfolio's resilience and performance. This approach can help achieve a more stable risk-return balance.
Dividends
- Schwab U.S. Dividend Equity ETF 3.30%
- Vanguard Total Stock Market Index Fund ETF Shares 1.20%
- Weighted yield (per year) 2.60%
The portfolio's dividend yield stands at 2.6%, driven primarily by the Schwab U.S. Dividend Equity ETF's 3.3% yield. This focus on dividend-paying stocks provides a steady income stream, which can be particularly appealing for income-focused investors. While dividend income can add stability, it's important to balance it with growth-oriented investments to ensure long-term capital appreciation. Reinvesting dividends or diversifying into growth sectors could further enhance the portfolio's overall performance.
Ongoing product costs
- Schwab U.S. Dividend Equity ETF 0.06%
- Vanguard Total Stock Market Index Fund ETF Shares 0.03%
- Weighted costs total (per year) 0.05%
With a total expense ratio (TER) of 0.05%, the portfolio benefits from low costs, which can significantly improve net returns over time. Low fees are crucial in maximizing investment growth, as they reduce the drag on performance. Maintaining a focus on cost-efficient investments is a smart strategy, but it's equally important to ensure that cost savings don't come at the expense of diversification or potential returns. Balancing low costs with strategic diversification can optimize long-term growth.
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