A balanced portfolio with strong focus on U.S. equities and minimal geographic diversification

Report created on Jan 15, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

The portfolio is heavily weighted towards U.S. equities, with four ETFs constituting its entirety. It includes the Vanguard S&P 500 ETF and the Vanguard Total Stock Market Index Fund ETF Shares, each at 30%, while the Schwab U.S. Large-Cap Growth ETF and Schwab U.S. Dividend Equity ETF make up the remaining 40%. This composition reflects a strong inclination towards large-cap U.S. stocks, which is typical for balanced portfolios. While this setup provides exposure to the U.S. market, it lacks diversification across asset classes and geographic regions. Consider introducing other asset types like bonds or international stocks to enhance diversification.

Growth Info

Historically, the portfolio has shown a robust Compound Annual Growth Rate (CAGR) of 14.67%, which is impressive compared to typical market benchmarks. However, it also experienced a maximum drawdown of -33.67%, highlighting potential volatility during market downturns. This performance suggests a strong growth potential but with significant risk. When evaluating past performance, remember that it does not guarantee future results. To mitigate potential future downturns, consider diversifying into less volatile asset classes or sectors.

Projection Info

The Monte Carlo simulation projects a wide range of potential outcomes, with a median return of 546.8%. This method uses historical data to simulate future performance, offering insights into possible risks and returns. However, it's important to note that these projections are based on past data and assumptions, which may not fully capture future market conditions. Given the 994 out of 1,000 simulations with positive returns, the outlook appears promising. To enhance future projections, consider adjusting the portfolio to reduce reliance on historical data trends.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with a negligible cash position of 0.28%. This heavy stock allocation can lead to higher returns during bull markets but also increases risk during downturns. A more balanced approach might include bonds or alternative investments, which can provide stability and reduce volatility. By diversifying across asset classes, you can better manage risk and potentially smooth out returns over time.

Sectors Info

  • Technology
    33%
  • Financials
    13%
  • Health Care
    12%
  • Consumer Discretionary
    11%
  • Telecommunications
    9%
  • Industrials
    7%
  • Consumer Staples
    6%
  • Energy
    4%
  • Basic Materials
    2%
  • Utilities
    2%
  • Real Estate
    2%

The portfolio is heavily weighted towards the technology sector at 32.66%, with financial services and healthcare also having significant allocations. This concentration in tech could lead to higher volatility, especially during periods of sector-specific downturns or interest rate hikes. While the sectoral distribution aligns with some benchmarks, it may benefit from further diversification into underrepresented sectors like utilities or real estate. Balancing sector exposure can help mitigate risks associated with specific industry fluctuations.

Regions Info

  • North America
    100%

With 99.53% of the portfolio allocated to North America, there's minimal geographic diversification. This high concentration exposes the portfolio to regional economic risks and limits growth opportunities in other global markets. Diversifying into emerging markets or developed regions outside North America can provide exposure to different economic cycles and growth drivers. Consider adding international equities or funds to enhance geographic diversification and reduce regional risk.

Redundant positions Info

  • Schwab U.S. Large-Cap Growth ETF
    Vanguard S&P 500 ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio contains highly correlated assets, particularly among the Schwab U.S. Large-Cap Growth ETF, Vanguard S&P 500 ETF, and Vanguard Total Stock Market Index Fund ETF Shares. High correlation means these assets tend to move in the same direction, limiting diversification benefits. During market downturns, this can amplify losses. To improve diversification, consider replacing some of these assets with those having lower correlation, such as international or sector-specific funds.

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 could benefit from optimization using the Efficient Frontier, which seeks the best risk-return balance based on existing assets. However, due to high asset correlation, diversification benefits are limited. Before optimizing, address the overlap by replacing highly correlated ETFs with less correlated alternatives. By focusing on improving the risk-return ratio, you can enhance overall efficiency and potentially achieve better performance without increasing risk.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.60%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 1.39%

The portfolio's overall dividend yield is 1.39%, with the Schwab U.S. Dividend Equity ETF contributing significantly at 3.6%. This yield provides a modest income stream, which can be appealing for those seeking regular cash flows. However, the focus on growth-oriented ETFs may limit the potential for higher dividend income. If income generation is a priority, consider increasing exposure to dividend-focused funds or stocks with a history of stable payouts.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.04%

The portfolio's total expense ratio (TER) is a low 0.04%, which is commendable and beneficial for long-term performance. Low costs mean more of your returns are retained, enhancing compounding effects over time. This cost efficiency aligns with best practices for portfolio management. While costs are currently optimized, continue to monitor for any changes in fund fees and consider lower-cost alternatives if they arise.

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