Balanced Growth Portfolio with Low Diversification and High North American Exposure

Report created on Dec 4, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

The portfolio is heavily concentrated in a few ETFs, with the SPDR® Portfolio S&P 500 Growth ETF making up over half of the total allocation. This lack of diversification can expose the portfolio to higher risks, particularly if the U.S. market underperforms. While ETFs are generally diversified within themselves, having a significant portion in one ETF means the portfolio may not be as balanced as it could be. To improve diversification, consider adding assets that are not already covered by the existing ETFs. This could help reduce risk and enhance potential returns over time.

Growth Info

Historically, the portfolio has performed well, boasting a compound annual growth rate (CAGR) of 14.57%. However, it's important to note the maximum drawdown of -33.85%, which indicates the potential for significant losses during market downturns. This performance suggests that while the portfolio has the potential for high returns, it also carries considerable risk. To mitigate this, consider strategies to reduce volatility, such as incorporating more defensive assets. This could help cushion the portfolio during turbulent market periods and provide more stable returns.

Projection Info

Using a Monte Carlo simulation, we projected the portfolio's future performance with an initial hypothetical investment. The simulation ran 1,000 scenarios, revealing an annualized return of 15.8%. While promising, it's crucial to remember that these simulations are based on historical data and assumptions. The results show a wide range of potential outcomes, emphasizing the portfolio's risk and reward balance. To align with personal risk tolerance, consider adjusting the portfolio's asset allocation. This could involve balancing growth-oriented investments with more stable options for a smoother ride.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly invested in stocks, with nearly all assets allocated to this class. This heavy equity concentration can lead to higher volatility and risk. While stocks can offer significant growth potential, their performance can be unpredictable. To reduce risk and enhance stability, consider diversifying into other asset classes like bonds or cash. This can help balance the portfolio and protect against market fluctuations. A more diversified asset mix can provide a cushion during downturns and potentially improve the portfolio's risk-adjusted returns.

Sectors Info

  • Technology
    35%
  • Consumer Discretionary
    13%
  • Financials
    11%
  • Health Care
    10%
  • Industrials
    9%
  • Telecommunications
    9%
  • Consumer Staples
    5%
  • Energy
    4%
  • Real Estate
    2%
  • Basic Materials
    2%
  • Utilities
    1%

The sector allocation is heavily skewed towards technology, which comprises over a third of the portfolio. While tech has been a strong performer historically, this concentration exposes the portfolio to sector-specific risks. If the tech sector underperforms, the portfolio could experience significant losses. To mitigate this risk, consider reallocating some investments to underrepresented sectors. A more balanced sector allocation can help reduce volatility and improve the portfolio's resilience to sector-specific downturns. This approach can lead to a more stable performance over time.

Regions Info

  • North America
    100%

Geographically, the portfolio is predominantly focused on North America, with over 99% of assets allocated to this region. This concentration exposes the portfolio to regional risks, such as economic downturns or policy changes in the U.S. To mitigate these risks and enhance diversification, consider adding international assets. This can provide exposure to different economic cycles and reduce dependency on the North American market. A more geographically diverse portfolio can help smooth returns and offer additional growth opportunities from global markets.

Redundant positions Info

  • Schwab U.S. Large-Cap Growth ETF
    SPDR® Portfolio S&P 500 Growth ETF
    High correlation

The portfolio contains highly correlated assets, particularly between the Schwab U.S. Large-Cap Growth ETF and the SPDR® Portfolio S&P 500 Growth ETF. High correlations mean these assets tend to move in the same direction, reducing diversification benefits. This can increase the portfolio's risk during market downturns. To improve diversification, consider replacing or reducing exposure to overlapping assets. Introducing assets with lower correlations can help balance the portfolio and reduce overall risk. This approach can lead to more stable performance and better risk-adjusted returns.

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 optimizing the portfolio, it's crucial to address the high correlation between some assets, as this limits diversification benefits. Consider reducing exposure to overlapping ETFs to enhance diversification. For those looking to adjust risk levels, moving along the efficient frontier can help. A shift towards more conservative investments can reduce risk, while adding higher-risk assets can increase potential returns. Focus on achieving a balanced mix that aligns with personal risk tolerance and investment goals. This approach can lead to a more efficient portfolio with improved risk-adjusted performance.

Dividends Info

  • Schwab U.S. Small-Cap ETF 1.70%
  • Schwab U.S. Dividend Equity ETF 3.30%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • SPDR® Portfolio S&P 500 Growth ETF 0.60%
  • Weighted yield (per year) 1.35%

The portfolio's dividend yield stands at 1.35%, with the Schwab U.S. Dividend Equity ETF contributing the highest yield at 3.3%. While dividends provide a steady income stream, the overall yield is relatively low. This suggests a focus on growth rather than income. To enhance income potential, consider increasing exposure to higher-yielding assets. This can provide a more balanced approach, combining growth with income. A higher dividend yield can offer a cushion during market downturns and contribute to total returns.

Ongoing product costs Info

  • Schwab U.S. Small-Cap ETF 0.04%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • SPDR® Portfolio S&P 500 Growth ETF 0.04%
  • Weighted costs total (per year) 0.04%

The portfolio's total expense ratio (TER) is low at 0.04%, indicating cost-efficient management. Low costs are crucial for maximizing returns over the long term, as they reduce the drag on performance. Maintaining a low-cost structure is beneficial, but it's important to ensure that the portfolio's asset allocation aligns with investment goals. Consider periodically reviewing and adjusting the portfolio to keep it in line with personal objectives. This can help optimize performance while keeping costs in check. A focus on cost-efficiency and strategic allocation can enhance overall returns.

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