A low-risk bond-focused portfolio with limited diversification and optimization potential

Risk profile

  • Secure
    Speculative

The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.

Diversification profile

  • Focused
    Diversified

The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.

What type of investor this portfolio is suitable for

Secure Investors

This portfolio suits an investor with a low-risk tolerance, prioritizing capital preservation and steady income over aggressive growth. It is ideal for individuals nearing retirement or those seeking a stable income stream with minimal volatility. The investment horizon is likely medium to long-term, focusing on maintaining purchasing power and providing consistent returns. This conservative approach aligns with investors who prefer a predictable income flow and are less concerned with capturing market upswings. For those seeking diversification and growth potential, incorporating additional asset classes may be beneficial.

Positions

  • iShares Core U.S. Aggregate Bond ETF
    AGG - US4642872265
    25.00%
  • Fidelity® Total Bond ETF
    FBND - US3161883091
    25.00%
  • J P Morgan Exchange-Traded Fund Trust - Limited Duration Bond ETF
    JPLD
    25.00%
  • PIMCO INCOME FUND CLASS A
    PONAX - US72201F4744
    25.00%

This portfolio is composed entirely of bond-focused ETFs and a bond mutual fund, each occupying 25% of the allocation. It emphasizes fixed-income securities, reflecting a conservative investment strategy. Compared to a balanced benchmark, this portfolio lacks diversification across different asset classes like equities or commodities. While its composition aligns with a low-risk profile, the absence of diversification may limit growth potential and increase vulnerability to interest rate changes. To enhance diversification, consider incorporating a mix of asset classes, such as equities or real estate, which can provide growth opportunities and reduce reliance on bonds alone.

Warning Historical data is limited for this portfolio, which reduces the confidence in the calculated values.

Growth Info

Historically, the portfolio has achieved a Compound Annual Growth Rate (CAGR) of 5.86%, with a maximum drawdown of -3.6%. This indicates stability in returns, aligning with its low-risk classification. Compared to a diversified benchmark, the portfolio's performance might lag during periods of equity market growth due to its bond-centric nature. While the historical performance is commendable for a low-risk portfolio, it's important to remember that past performance doesn't guarantee future results. To potentially enhance returns, consider diversifying into growth-oriented assets that can capitalize on different market conditions.

Warning Due to limited historical data, this may show extreme values that are not realistic.

Projection Info

Monte Carlo simulations, which use historical data to project potential outcomes, indicate an annualized return of 6.06% for this portfolio. The simulations show a positive return in all scenarios, with the 50th percentile reaching 130.9% of the initial investment. While projections offer insight, they rely on historical data and can't predict future market conditions. To improve the portfolio's potential outcomes, consider optimizing the asset allocation to balance risk and return better. This could involve reducing highly correlated assets and exploring other fixed-income instruments or asset classes.

Asset classes Info

  • Bonds
    104%
  • Other
    0%
  • Stocks
    0%
  • No data
    0%
  • Not Classified
    0%

The portfolio is entirely invested in bonds, with no allocation to stocks, real estate, or other asset classes. This single-focus approach aligns with a conservative risk profile but limits diversification benefits. Compared to a multi-asset benchmark, this portfolio may underperform in growth phases due to its lack of equity exposure. To enhance diversification and potential returns, consider incorporating a mix of asset classes. Even a small allocation to equities or alternative investments could provide a buffer against interest rate fluctuations and improve the overall risk-return profile.

Regions Info

  • North America
    18%
  • Europe Developed
    7%

Geographically, the portfolio is underexposed to global markets, with only 18% in North America and 7% in Europe Developed. This limited geographic diversification may increase vulnerability to regional economic shifts. Compared to a globally diversified benchmark, the portfolio's geographic allocation is narrow. Expanding geographic exposure can reduce regional risks and tap into growth opportunities in emerging markets. Consider increasing allocations to international bonds or other global asset classes to enhance diversification and potentially improve returns.

Market capitalization Info

  • Small-cap
    0%
  • Large-cap
    0%
  • Micro-cap
    0%

The portfolio does not have exposure to market capitalization, as it is entirely composed of bond-focused investments. This lack of equity exposure means it doesn't benefit from the growth potential of small, mid, or large-cap stocks. Compared to a diversified benchmark, this limits opportunities for capital appreciation. To introduce market cap diversification, consider adding equities with varying market capitalizations. Incorporating a mix of small, mid, and large-cap stocks can enhance growth potential and balance the portfolio's risk profile.

Redundant positions Info

  • Fidelity® Total Bond ETF
    iShares Core U.S. Aggregate Bond ETF
    High correlation

The portfolio contains highly correlated assets, specifically the Fidelity® Total Bond ETF and iShares Core U.S. Aggregate Bond ETF. High correlation means these assets tend to move together, reducing diversification benefits. In times of market downturns, this can lead to increased risk exposure. To improve diversification, consider replacing one of the correlated assets with a less correlated bond or alternative investment. This change could enhance the portfolio's ability to withstand market fluctuations and improve its risk-return balance.

Dividends Info

  • iShares Core U.S. Aggregate Bond ETF 3.70%
  • Fidelity® Total Bond ETF 3.90%
  • J P Morgan Exchange-Traded Fund Trust - Limited Duration Bond ETF 3.00%
  • PIMCO INCOME FUND CLASS A 5.30%
  • Weighted yield (per year) 3.98%

The portfolio boasts a total dividend yield of 3.98%, which is a significant contributor to its overall returns. For income-focused investors, this yield provides a steady income stream, aligning with the portfolio's conservative nature. Compared to equity-focused portfolios, bond yields are generally more stable, offering reliable income. To maintain or enhance this income stream, consider regularly reviewing and rebalancing the portfolio to ensure optimal yield performance. Adding high-yield bonds or dividend-focused equities could further boost income potential.

Ongoing product costs Info

  • iShares Core U.S. Aggregate Bond ETF 0.03%
  • Fidelity® Total Bond ETF 0.36%
  • J P Morgan Exchange-Traded Fund Trust - Limited Duration Bond ETF 0.24%
  • PIMCO INCOME FUND CLASS A 1.23%
  • Weighted costs total (per year) 0.46%

The portfolio's total expense ratio (TER) is 0.46%, with the PIMCO INCOME FUND CLASS A contributing the highest cost at 1.23%. While the overall cost is moderate, minimizing expenses is crucial for long-term performance. High costs can erode returns, especially in a low-yield environment. To reduce expenses, consider replacing higher-cost funds with lower-cost alternatives or ETFs. This change can improve net returns over time, enhancing the portfolio's efficiency. Regularly reviewing and comparing fund costs can help maintain a cost-effective investment strategy.

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.

The current portfolio could be optimized using the Efficient Frontier, which focuses on achieving the best possible risk-return ratio. By adjusting the allocation among existing assets, the portfolio could potentially achieve an expected return of 6.82% with a risk level of 1.92%. This optimization doesn't necessarily mean adding new assets but reallocating within the current ones to improve efficiency. Consider exploring optimization tools or consulting with a financial advisor to identify the best allocation strategy. This process can help align the portfolio with your risk tolerance and return expectations.

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