Balanced Portfolio with High Domestic Exposure and Overlapping Assets in Technology and Growth Sectors
Report created on Nov 24, 2024Risk profile
4/7
Diversification profile
3/5
Positions
-
VT Vanguard Total Stock Market Index Fund ETF Shares
VTI - US9229087690 77.00% -
VX Vanguard Total International Stock Index Fund ETF Shares
VXUS - US9219097683 9.00% -
QQ Invesco NASDAQ 100 ETF
QQQM - US46138G6492 8.00% -
AV Avantis® U.S. Small Cap Value ETF
AVUV - US0250728773 4.00% -
MG Vanguard Mega Cap Growth Index Fund ETF Shares
MGK - US9219108167 2.00%
The portfolio is heavily weighted towards equities, with a 99.7% allocation to stocks. It comprises five ETFs, with the Vanguard Total Stock Market Index Fund ETF Shares making up 77% of the portfolio. Other notable allocations include the Vanguard Total International Stock Index Fund ETF Shares and the Invesco NASDAQ 100 ETF. This composition suggests a strong focus on broad market exposure and growth potential. While this can lead to significant gains, it also exposes the portfolio to market volatility. Consideration should be given to diversifying into other asset classes to mitigate risk and enhance stability.
Growth
Historically, the portfolio has performed well with a CAGR of 14.93%, indicating strong growth over time. However, it has also experienced a maximum drawdown of -25.83%, highlighting its vulnerability to market downturns. The concentration in equities can lead to large swings in value, which may not be suitable for all investors. To stabilize returns and reduce the impact of market volatility, it might be beneficial to explore the inclusion of more conservative assets. This could help balance the risk and return profile, making the portfolio more resilient during market fluctuations.
Projection
A Monte Carlo simulation, which uses random sampling to model potential future outcomes, was conducted with 1,000 simulations. The results suggest a wide range of potential future portfolio values, with a median return of 616.63%. This indicates a strong likelihood of positive returns, as 994 simulations resulted in gains. However, the variability in outcomes underscores the importance of managing risk. Diversifying the portfolio further could help to smooth returns and provide more consistent growth over time, aligning with a balanced risk profile and long-term investment goals.
Asset classes
- Stocks 100%
The portfolio is almost entirely composed of stocks, with negligible allocations to cash and other asset classes. This concentration in equities can lead to significant growth opportunities but also increases risk exposure. Diversification into other asset classes, such as bonds or real assets, could help reduce volatility and provide a more balanced risk-return profile. By incorporating assets with lower correlations to equities, the portfolio could achieve more stable returns, which is particularly important for investors seeking to preserve capital while still pursuing growth.
Sectors
- Technology 30%
- Financials 14%
- Consumer Discretionary 11%
- Health Care 10%
- Industrials 9%
- Telecommunications 9%
- Consumer Staples 5%
- Energy 4%
- Basic Materials 3%
- Real Estate 3%
- Utilities 2%
The portfolio is heavily concentrated in the technology sector, which accounts for 30.28% of the allocation. Other major sectors include financial services and consumer cyclicals. This sector allocation can drive strong performance during periods of economic growth but may also lead to increased volatility during downturns. To mitigate sector-specific risks, consider diversifying into sectors with different economic sensitivities. This can help balance the portfolio and reduce the impact of sector-specific downturns, contributing to more consistent returns over the long term.
Regions
- North America 91%
- Europe Developed 4%
- Asia Emerging 2%
- Japan 1%
- Asia Developed 1%
Geographically, the portfolio is predominantly focused on North America, with 91.05% of assets allocated to this region. Other regions, such as Europe and Asia, have minimal representation. This heavy domestic bias could limit the portfolio's exposure to global growth opportunities and increase vulnerability to regional economic downturns. To enhance diversification, consider increasing exposure to international markets. This can provide access to different economic cycles and growth opportunities, potentially improving the portfolio's overall risk-return profile and reducing reliance on the performance of a single region.
Redundant positions
-
High correlationInvesco NASDAQ 100 ETFVanguard Total Stock Market Index Fund ETF SharesVanguard Mega Cap Growth Index Fund ETF Shares
The portfolio exhibits high correlations among certain assets, particularly those within the technology and growth sectors, such as the Invesco NASDAQ 100 ETF and the Vanguard Mega Cap Growth Index Fund ETF Shares. This overlap can reduce the diversification benefits and increase the portfolio's sensitivity to sector-specific risks. To improve diversification, consider reducing holdings in highly correlated assets and exploring opportunities in less correlated sectors or asset classes. This approach can help achieve a more balanced portfolio, enhancing resilience against market fluctuations and improving overall performance.
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 could benefit from optimization by addressing the high correlation among assets, particularly within the technology and growth sectors. By reducing overlap, the portfolio can achieve better diversification and potentially enhance returns. Moving along the efficient frontier, an investor can adjust the risk level by incorporating a mix of asset classes. To pursue a riskier portfolio, increase equity exposure; for a more conservative approach, consider adding bonds or other low-risk assets. Prioritize diversification and correlation management to optimize the portfolio's risk-return profile effectively.
Dividends
- Avantis® U.S. Small Cap Value ETF 1.50%
- Vanguard Mega Cap Growth Index Fund ETF Shares 0.40%
- Invesco NASDAQ 100 ETF 0.60%
- Vanguard Total Stock Market Index Fund ETF Shares 1.30%
- Vanguard Total International Stock Index Fund ETF Shares 3.00%
- Weighted yield (per year) 1.39%
The portfolio's dividend yield is modest at 1.39%, with the highest contributions from the Vanguard Total International Stock Index Fund ETF Shares and the Avantis® U.S. Small Cap Value ETF. While dividends can provide a steady income stream, the current yield may not be sufficient for income-focused investors. To enhance income potential, consider allocating more to dividend-paying assets. This can help improve cash flow and provide a buffer during periods of market volatility, while still allowing for growth opportunities through capital appreciation.
Ongoing product costs
- Avantis® U.S. Small Cap Value ETF 0.25%
- Vanguard Mega Cap Growth Index Fund ETF Shares 0.07%
- Invesco NASDAQ 100 ETF 0.15%
- 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 relatively low at 0.05%, reflecting the cost-effectiveness of the ETF holdings. The Vanguard Total Stock Market Index Fund ETF Shares offers the lowest expense ratio, while the Avantis® U.S. Small Cap Value ETF has the highest. Keeping costs low is crucial for maximizing returns over the long term, as high fees can erode gains. To maintain cost efficiency, regularly review expense ratios and consider reallocating to lower-cost options if available. This can help optimize the portfolio's performance and ensure more of the returns are retained.
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