Balanced Portfolio with High Tech Exposure and Low Diversification Needs Strategic Adjustments for Optimal Performance

Report created on Dec 5, 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 is composed of five ETFs, with a heavy focus on stocks, particularly in the technology sector. It includes Vanguard Information Technology, Dividend Appreciation, and Growth Index Fund ETFs, each making up 30% of the portfolio. The remaining 10% is split equally between the Vanguard Total Bond Market Index Fund ETF and iShares 0-3 Month Treasury Bond ETF. This composition reflects a single-focused diversification strategy, with a significant tilt towards equities and a minor allocation to bonds and cash, indicating a balanced yet tech-heavy approach.

Growth Info

Historically, the portfolio has shown impressive performance, with a compound annual growth rate (CAGR) of 17.99%. However, it also experienced a maximum drawdown of -29.13%, highlighting the volatility associated with its stock-heavy allocation. The portfolio's returns are concentrated, with 90% of gains occurring over just 26 days. This suggests the portfolio can deliver substantial returns but also carries the risk of significant losses during market downturns. To mitigate this, consider strategies for reducing volatility while maintaining growth potential.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was projected with a hypothetical initial investment. The simulation suggests a median growth of 381.64% over the investment horizon, with a 5th percentile return of 63.31% and a 67th percentile return of 536.19%. Notably, 998 out of 1,000 simulations resulted in positive returns, indicating a high likelihood of future gains. However, the annualized return across simulations is 12.86%, slightly lower than historical performance, emphasizing the importance of diversification to manage future risks.

Asset classes Info

  • Stocks
    90%
  • Cash
    5%
  • Bonds
    5%

The portfolio's asset class distribution is heavily skewed towards stocks, which make up approximately 89.75% of the allocation. Bonds and cash are minimally represented, at 4.96% and 5.29%, respectively. This reflects a growth-oriented strategy, suitable for investors willing to accept higher volatility for potential higher returns. While this allocation can drive growth, it also exposes the portfolio to market fluctuations. Balancing this with a greater allocation to bonds could help stabilize returns and reduce overall risk.

Sectors Info

  • Technology
    52%
  • Financials
    8%
  • Health Care
    7%
  • Consumer Discretionary
    6%
  • Industrials
    4%
  • Telecommunications
    4%
  • Consumer Staples
    4%
  • Basic Materials
    2%
  • Energy
    1%
  • Utilities
    1%

Sector allocation is predominantly focused on technology, with over 52% of the portfolio dedicated to this sector. Other sectors like financial services, healthcare, and consumer cyclicals are present but significantly underrepresented. This concentration in technology can lead to substantial gains when the sector performs well but also increases vulnerability to sector-specific downturns. To enhance diversification, consider spreading investments across a wider range of sectors to mitigate risks and capitalize on broader market trends.

Regions Info

  • North America
    90%

Geographically, the portfolio is concentrated in North America, accounting for 89.53% of its allocation. Exposure to other regions, such as Europe, Asia, and Latin America, is minimal. This regional concentration can lead to missed opportunities in emerging markets and other developed economies. Diversifying geographically can provide a hedge against region-specific risks and tap into growth opportunities in other parts of the world. Consider increasing exposure to international markets to balance the portfolio's geographic risk.

Redundant positions Info

  • Vanguard Growth Index Fund ETF Shares
    Vanguard Information Technology Index Fund ETF Shares
    High correlation

The portfolio exhibits high correlation among its assets, particularly between the Vanguard Growth Index Fund ETF and the Vanguard Information Technology Index Fund ETF. This correlation suggests overlapping investments that may not provide diversification benefits. High correlation can lead to amplified portfolio volatility during market swings. To enhance diversification, consider reducing exposure to highly correlated assets and incorporating investments with low correlation to existing holdings, which can help stabilize returns and manage 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.

To optimize the portfolio, focus on reducing high correlations among existing assets, particularly within tech-focused ETFs. This will improve diversification and potentially enhance risk-adjusted returns. Moving along the efficient frontier can help achieve a more conservative or riskier portfolio. By reallocating assets to decrease overlap, investors can better align with their risk tolerance. Prioritize diversification to mitigate sector-specific risks, and consider increasing bond allocation for a more balanced risk profile without compromising growth potential.

Dividends Info

  • Vanguard Total Bond Market Index Fund ETF Shares 3.60%
  • iShares® 0-3 Month Treasury Bond ETF 5.20%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard Dividend Appreciation Index Fund ETF Shares 1.70%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Weighted yield (per year) 1.28%

The portfolio's overall dividend yield is 1.28%, with the iShares 0-3 Month Treasury Bond ETF contributing the highest yield at 5.2%. The focus on growth and technology ETFs results in lower dividend income, which might not suit investors seeking regular cash flow. While the growth potential is attractive, consider balancing the portfolio with higher-yielding assets to boost income generation. This approach can provide a steady income stream while maintaining growth exposure, appealing to income-focused investors.

Ongoing product costs Info

  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • iShares® 0-3 Month Treasury Bond ETF 0.07%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard Dividend Appreciation Index Fund ETF Shares 0.06%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Weighted costs total (per year) 0.06%

The portfolio's total expense ratio (TER) is a low 0.06%, reflecting cost-effective management through ETFs. Individual fund costs range from 0.03% to 0.1%, with the Vanguard Total Bond Market Index Fund ETF being the cheapest. Keeping costs low is crucial for maximizing net returns over time. This portfolio's low TER is a strength, allowing more of the returns to compound over the long term. Maintaining this cost-conscious approach is advisable to ensure that fees do not erode investment gains.

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