Balanced Portfolio with Low Diversity and High Correlation Among Key ETFs

Report created on Dec 6, 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 composed primarily of ETFs, with a significant 50% allocation to the Vanguard S&P 500 ETF. The Invesco NASDAQ 100 ETF and Vanguard Total Stock Market Index Fund ETF Shares each hold 20%, while the Schwab U.S. Dividend Equity ETF makes up the remaining 10%. This composition suggests a focus on broad market exposure and dividend income. However, the low diversification score indicates a limited spread across different asset classes. Consider diversifying further to enhance stability and reduce risk, potentially by incorporating other asset classes such as bonds or international equities.

Growth Info

The historical performance of this portfolio is impressive, with a CAGR of 15.95%. A hypothetical initial investment would have grown substantially over time, despite a maximum drawdown of -25.61%. This indicates strong growth potential but also highlights vulnerability during market downturns. The days that make up 90% of returns being just 22 suggests concentrated periods of gains. To mitigate large drawdowns, consider strategies to protect against downside risks, such as adding more defensive assets or increasing cash reserves during volatile times.

Projection Info

Using a Monte Carlo simulation with 1,000 simulations, the portfolio shows potential for significant growth, with the 50th percentile projection at 656.55% and a 5th percentile at 141.86%. The annualized return of all simulations stands at 16.75%. Monte Carlo simulations provide a range of possible outcomes by modeling different market scenarios. This suggests a generally positive outlook, though it's crucial to be prepared for varying results. To optimize future performance, consider rebalancing periodically and evaluating the portfolio's risk exposure in line with financial goals.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, with 99.9% in equities and a negligible amount in cash. This allocation aligns with a growth-oriented strategy but lacks the balance that bonds or other asset classes could provide. A more diversified asset allocation could help cushion against market volatility and potentially enhance risk-adjusted returns. Reassessing the portfolio's allocation to include a mix of asset classes might offer a more stable performance over time, especially during market downturns.

Sectors Info

  • Technology
    34%
  • Financials
    11%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Telecommunications
    10%
  • Industrials
    7%
  • Consumer Staples
    6%
  • Energy
    4%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    2%

The sector allocation is skewed towards Technology at 33.94%, followed by Financial Services, Consumer Cyclicals, and Healthcare. This concentration in tech suggests a growth bias but may expose the portfolio to sector-specific risks. Diversifying across more sectors could reduce potential volatility and provide steadier returns. A more balanced sector allocation can help mitigate the impact of any single sector's downturn on the overall portfolio performance, providing a smoother ride through varying economic cycles.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is almost entirely invested in North America, with 99.05% exposure. This heavy concentration limits the benefits of international diversification, which can offer protection against regional economic downturns. Including a broader range of geographic regions could enhance the portfolio's resilience and capitalize on growth opportunities in emerging markets. Expanding geographic exposure might help balance the risk and return profile, making the portfolio more robust against localized market fluctuations.

Redundant positions Info

  • Vanguard S&P 500 ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

There is a high correlation between the Vanguard S&P 500 ETF and the Vanguard Total Stock Market Index Fund ETF Shares. This overlap doesn't provide diversification benefits, as these assets tend to move in tandem. Reducing such redundancies can enhance the portfolio's efficiency and risk management. Consider replacing one of these ETFs with an asset that offers different market exposure or risk characteristics to achieve a more diversified and balanced portfolio.

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, focus on reducing asset overlaps, particularly those with high correlations, as this does not contribute to diversification. By moving along the efficient frontier, the portfolio can be adjusted to achieve a more conservative or riskier profile, depending on the investor's goals. This involves rebalancing the portfolio to include a wider array of asset classes and sectors, thereby enhancing diversification and potentially improving risk-adjusted returns. It's essential to align these adjustments with personal financial objectives and risk tolerance.

Dividends Info

  • Invesco NASDAQ 100 ETF 0.60%
  • Schwab U.S. Dividend Equity ETF 2.50%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Weighted yield (per year) 1.21%

The portfolio's dividend yield is 1.21%, with the Schwab U.S. Dividend Equity ETF contributing the highest yield at 2.5%. This suggests a moderate income-generating capability, which can be a valuable source of returns during market downturns or periods of low growth. To enhance income potential, consider exploring other dividend-focused investments or strategies. Balancing growth and income could provide a more comprehensive return profile, addressing both capital appreciation and income needs.

Ongoing product costs Info

  • Invesco NASDAQ 100 ETF 0.15%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.06%

The portfolio's total expense ratio (TER) is 0.06%, which is relatively low and favorable for long-term growth. This cost efficiency is achieved through the choice of low-cost ETFs, such as the Vanguard S&P 500 ETF and Vanguard Total Stock Market Index Fund ETF Shares. Keeping investment costs low is crucial for maximizing net returns over time. Continuously monitoring and managing expenses ensures that more of the portfolio's returns are retained, contributing to better overall performance.

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