Balanced portfolio with strong U.S. focus and a tech-heavy concentration

Report created on Jan 2, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

This portfolio consists entirely of ETFs, with a significant portion allocated to the SPDR® Portfolio S&P 500 ETF, representing one-third of the holdings. The remaining assets are evenly distributed among four other ETFs, focusing on technology, dividends, and growth. This structure leans heavily towards equities, with minimal cash holdings. While this composition offers exposure to a broad market index and specific sectors, it lacks diversity in asset classes, which can limit the portfolio's resilience to market fluctuations. To enhance stability, consider incorporating other asset types, such as bonds or alternative investments, to cushion against equity market volatility.

Growth Info

Historically, the portfolio has delivered a robust Compound Annual Growth Rate (CAGR) of 15.02%, outperforming many traditional benchmarks. However, it's important to note the significant maximum drawdown of -32.98%, which indicates vulnerability during market downturns. Such performance suggests a high-growth, high-risk profile that can yield substantial returns but also exposes the investor to potential losses. To mitigate risk, consider strategies that can protect against downside, such as diversification across uncorrelated assets or incorporating hedging techniques.

Projection Info

The forward projection, based on a Monte Carlo simulation with 1,000 iterations, shows varied potential outcomes for the portfolio. The median scenario projects a 592.08% increase, while the worst-case scenario still predicts positive returns at 127.55%. It's essential to understand that these projections use historical data, which may not predict future results accurately. The high annualized return across simulations suggests a promising outlook, but it's crucial to maintain a cautious approach, considering the inherent uncertainties in market behavior.

Asset classes Info

  • Stocks
    100%

With 99.72% of the portfolio invested in stocks, there's an overwhelming emphasis on equities, leaving it susceptible to market swings. This allocation starkly contrasts with more diversified portfolios that typically include bonds, real estate, or commodities to balance risk. The lack of diversification in asset classes means the portfolio could experience significant volatility. To address this, consider allocating a portion to fixed income or alternative investments, which can provide stability and reduce overall risk, especially during turbulent market periods.

Sectors Info

  • Technology
    40%
  • Financials
    13%
  • Consumer Discretionary
    9%
  • Health Care
    9%
  • Industrials
    7%
  • Telecommunications
    7%
  • Consumer Staples
    7%
  • Energy
    5%
  • Utilities
    2%
  • Basic Materials
    1%
  • Real Estate
    1%

The portfolio has a notable concentration in the technology sector, accounting for nearly 40% of the holdings. This tech-heavy focus can drive strong returns during growth periods but also introduces higher volatility, especially when interest rates rise or tech stocks underperform. Other sectors like financial services and consumer cyclicals are represented but to a lesser extent. Balancing sector exposure by increasing allocations to underrepresented areas, such as utilities or healthcare, can enhance diversification and reduce sector-specific risks.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is heavily skewed towards North American assets, with over 99% exposure. This concentration limits the benefits of international diversification, potentially missing out on growth opportunities in emerging markets or other developed regions. Such a focus can also increase vulnerability to regional economic downturns. To mitigate this, consider expanding geographic exposure by adding international or emerging market ETFs, which can provide a buffer against U.S.-centric risks and capture global growth.

Redundant positions Info

  • Fidelity® MSCI Information Technology Index ETF
    Vanguard Growth Index Fund ETF Shares
    High correlation
  • Vanguard High Dividend Yield Index Fund ETF Shares
    Schwab U.S. Dividend Equity ETF
    High correlation

The portfolio contains highly correlated assets, particularly between the Fidelity® MSCI Information Technology Index ETF and the Vanguard Growth Index Fund ETF Shares, as well as the Vanguard High Dividend Yield Index Fund ETF Shares and the Schwab U.S. Dividend Equity ETF. High correlation implies these assets tend to move in tandem, reducing diversification benefits. To improve risk management, consider replacing some of these correlated assets with alternatives that have lower correlations, thus enhancing the portfolio's ability to withstand market fluctuations.

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 using the Efficient Frontier, which seeks the best possible risk-return ratio. However, current holdings with high correlations limit diversification benefits. Before optimizing, focus on reducing overlapping assets that don't contribute to diversification. Once the portfolio is diversified, optimization can help in reallocating assets to achieve a more efficient balance. This approach ensures that the portfolio is not only cost-effective but also strategically aligned for optimal risk-adjusted returns.

Dividends Info

  • Fidelity® MSCI Information Technology Index ETF 0.40%
  • Schwab U.S. Dividend Equity ETF 3.60%
  • SPDR® Portfolio S&P 500 ETF 1.30%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Vanguard High Dividend Yield Index Fund ETF Shares 2.70%
  • Weighted yield (per year) 1.63%

The dividend yield of 1.63% is modest, with contributions primarily from the Schwab U.S. Dividend Equity ETF and the Vanguard High Dividend Yield Index Fund ETF Shares. Dividends can provide a steady income stream and add a layer of stability to returns, especially during volatile market periods. For investors seeking income, it may be beneficial to increase exposure to high-dividend ETFs or stocks. However, it's important to balance yield with growth potential to ensure the portfolio remains aligned with long-term goals.

Ongoing product costs Info

  • Fidelity® MSCI Information Technology Index ETF 0.08%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • SPDR® Portfolio S&P 500 ETF 0.02%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Vanguard High Dividend Yield Index Fund ETF Shares 0.06%
  • Weighted costs total (per year) 0.05%

The portfolio's total expense ratio (TER) is impressively low at 0.05%, reflecting a cost-efficient structure. This low-cost approach supports better long-term performance, as fees can significantly erode returns over time. Maintaining a focus on minimizing expenses is a prudent strategy. However, while low fees are advantageous, they should not be the sole consideration. It's essential to ensure that the portfolio's asset allocation and diversification align with investment objectives, even if it means incurring slightly higher costs for better diversification.

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