Balanced US-Focused Portfolio with Strong Performance but Limited Diversification and High Correlation

Report created on Nov 27, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

1/5
Single-Focused
Less diversification More diversification

Positions

The portfolio consists of five ETFs with a strong focus on U.S. equities, comprising 97.37% in stocks. The allocation is quite balanced with the largest holding being the Schwab U.S. Dividend Equity ETF at 25%, followed by Avantis U.S. Small Cap Value ETF, Schwab U.S. Large-Cap Growth ETF, and SPDR Portfolio S&P 500 ETF each at 20%. The JPMorgan Nasdaq Equity Premium Income ETF holds the remaining 15%. This composition indicates a concentrated focus on large-cap and growth stocks, which may limit diversification benefits.

Growth Info

Historically, the portfolio has shown impressive growth with a compound annual growth rate (CAGR) of 15.47%. This suggests strong performance, likely driven by the U.S. market's upward trend in recent years. However, the maximum drawdown of -16.22% reflects some volatility, which is common in equity-heavy portfolios. To maintain this performance, it's crucial to regularly assess market conditions and adjust allocations accordingly, ensuring the portfolio remains aligned with long-term goals and risk tolerance.

Projection Info

Using a Monte Carlo simulation, the portfolio is projected to have a median growth of 632.75% with a 5th percentile at 137.02% and a 67th percentile at 905.73%. This indicates potential for significant growth, but also highlights the inherent uncertainty in market predictions. Monte Carlo simulations provide a range of possible outcomes by simulating various market scenarios. While the portfolio shows a high likelihood of positive returns, it's important to remain aware of potential risks and consider diversifying further to mitigate them.

Asset classes Info

  • Stocks
    97%
  • No data
    2%

The asset allocation is heavily skewed towards stocks, with a negligible amount in cash and other unclassified assets. This concentration in equities can lead to higher returns but also increases exposure to market volatility. Diversifying across different asset classes, such as bonds or real estate, could help reduce risk and provide more stability. A balanced approach can enhance the portfolio's resilience against market downturns, ensuring a smoother investment journey.

Sectors Info

  • Technology
    28%
  • Financials
    15%
  • Consumer Discretionary
    13%
  • Industrials
    9%
  • Health Care
    9%
  • Telecommunications
    8%
  • Energy
    7%
  • Consumer Staples
    6%
  • Basic Materials
    3%
  • Utilities
    1%
  • Real Estate
    1%

The portfolio covers various sectors with a notable emphasis on Technology at 27.78%, followed by Financial Services and Consumer Cyclicals. While this sector allocation can drive growth during tech booms, it also exposes the portfolio to sector-specific risks. Broadening exposure to other sectors like Utilities or Real Estate could provide a buffer against downturns in the tech industry. A well-diversified sector allocation can help capture growth opportunities across different economic conditions.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly concentrated in North America at 98.89%, with minimal exposure to other regions. This focus on the U.S. market can be advantageous given its historical performance but also limits the portfolio's ability to benefit from global growth opportunities. Expanding geographic diversification could help mitigate risks associated with regional economic downturns and enhance potential returns by tapping into emerging markets and other developed regions.

Redundant positions Info

  • JPMorgan Nasdaq Equity Premium Income ETF
    Schwab U.S. Large-Cap Growth ETF
    SPDR® Portfolio S&P 500 ETF
    High correlation

The portfolio contains highly correlated assets, particularly among the JPMorgan Nasdaq Equity Premium Income ETF, Schwab U.S. Large-Cap Growth ETF, and SPDR Portfolio S&P 500 ETF. This high correlation suggests that these assets tend to move in the same direction, reducing diversification benefits. To address this, consider introducing assets with lower correlations, which can help smooth out returns and reduce overall portfolio risk.

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 can be optimized by first addressing the high correlation among certain assets, which limits diversification benefits. By introducing less correlated assets, the portfolio can achieve a more efficient risk-return balance. Moving along the efficient frontier, investors can opt for a riskier or more conservative stance by adjusting the asset mix. However, before optimizing, focus on enhancing diversification and reducing overlap to improve overall portfolio performance.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • JPMorgan Nasdaq Equity Premium Income ETF 9.30%
  • Schwab U.S. Dividend Equity ETF 3.30%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • SPDR® Portfolio S&P 500 ETF 1.20%
  • Weighted yield (per year) 2.84%

The portfolio's dividend yield stands at 2.84%, with the JPMorgan Nasdaq Equity Premium Income ETF contributing the highest yield at 9.3%. This provides a steady income stream, which can be reinvested to compound growth or used to fund expenses. While dividends can add stability, relying too heavily on high-yielding assets might expose the portfolio to income risk. Balancing dividend income with capital appreciation can create a more robust investment strategy.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • JPMorgan Nasdaq Equity Premium Income ETF 0.35%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • SPDR® Portfolio S&P 500 ETF 0.02%
  • Weighted costs total (per year) 0.13%

The portfolio's total expense ratio is 0.13%, which is relatively low and favorable for long-term growth. Lower costs mean more of the portfolio's returns are retained, enhancing compounding effects over time. However, it's essential to regularly review expense ratios to ensure they remain competitive. Keeping investment costs low is crucial for maximizing net returns, so consider re-evaluating fund choices periodically to maintain cost-effectiveness without compromising on quality.

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