Balanced Portfolio with High U.S. Exposure and Low Diversification but Strong Historical Performance

Report created on Dec 4, 2024

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 primarily composed of two ETFs: Schwab U.S. Dividend Equity ETF and Vanguard S&P 500 ETF, making up 77.7% and 22.3% of the portfolio, respectively. This results in a low diversification score, with heavy reliance on U.S. equities. While ETFs provide a cost-effective way to invest in broad markets, the concentration in just two funds limits exposure to other asset classes and global markets. Improving diversification could enhance risk management and potentially smooth returns over time.

Growth Info

Historically, the portfolio has delivered a solid CAGR of 12.81%, indicating strong growth potential. However, it also experienced a maximum drawdown of -33.31%, which highlights the risk of significant value loss during market downturns. This performance suggests that while the portfolio can generate impressive returns, it may also be volatile. To mitigate potential losses, consider strategies to manage downside risk, such as incorporating assets with lower volatility or diversifying across additional sectors.

Projection Info

Using a Monte Carlo simulation of 1,000 scenarios, the portfolio's projected annualized return is 14.08%. This method uses random sampling to predict future performance, showing a wide range of potential outcomes. The 50th percentile suggests a potential growth of 448.38% over the investment horizon. While this is promising, it's crucial to recognize the inherent uncertainty in projections. Maintaining a balanced approach and preparing for various market conditions can help achieve long-term goals.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily skewed towards stocks, with 99.91% allocated to equities and a mere 0.09% in cash. This indicates a high-risk, high-reward strategy, typical of equity-focused portfolios. While equities offer growth potential, they also come with increased volatility. Consider diversifying into other asset classes like bonds or real estate to balance risk and return. A more diversified asset allocation could help cushion against market fluctuations and provide a more stable investment experience.

Sectors Info

  • Financials
    18%
  • Technology
    16%
  • Health Care
    14%
  • Consumer Staples
    12%
  • Consumer Discretionary
    11%
  • Energy
    11%
  • Industrials
    11%
  • Telecommunications
    5%
  • Basic Materials
    2%
  • Utilities
    1%
  • Real Estate
    1%

The sector allocation within the portfolio shows significant exposure to Financial Services, Technology, and Healthcare, which are the top three sectors. While these sectors have strong growth potential, the concentration in a few sectors increases the portfolio's vulnerability to sector-specific risks. Diversifying across more sectors could reduce this risk and improve stability. A more balanced sector allocation can help mitigate the impact of downturns in any single industry, enhancing the portfolio's resilience.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly concentrated in North America, with 99.37% of assets in the region. This lack of geographic diversification exposes the portfolio to regional economic and political risks. Expanding exposure to other regions, such as Europe, Asia, or emerging markets, could provide opportunities for growth and risk reduction. A more globally diversified portfolio can benefit from different economic cycles and reduce reliance on the performance of a single region.

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 optimization chart suggests potential for improvement by adjusting along the efficient frontier. This can help achieve a more risk-efficient balance between expected return and volatility. To create a riskier portfolio, increase exposure to higher volatility assets. For a more conservative approach, consider adding lower-risk assets like bonds. However, given the current low diversification, focus on broadening asset classes and geographic exposure before fine-tuning risk-return trade-offs.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.30%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 2.83%

The portfolio offers a decent dividend yield of 2.83%, with contributions from both ETFs. Dividends provide a steady income stream and can be a significant component of total returns, especially in volatile markets. Reinvesting dividends can enhance compounding growth, while taking them as income can provide cash flow. Evaluating the role of dividends in the investment strategy can help align with financial goals, whether it's income generation or growth through reinvestment.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.05%

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