Balanced portfolio with strong U.S. focus and limited diversification across sectors

Report created on Mar 18, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

The portfolio comprises three ETFs: Vanguard S&P 500 ETF (50%), Schwab U.S. Large-Cap Growth ETF (30%), and Schwab U.S. Dividend Equity ETF (20%). This structure leans heavily towards U.S. large-cap equities, offering exposure primarily to established companies. While this allocation provides a solid foundation for growth, it lacks diversification across different asset classes, which could expose the portfolio to higher risk during market downturns. Diversifying into other asset classes, such as bonds or international equities, could enhance stability.

Growth Info

Historically, the portfolio has performed well, with a CAGR of 13.95%. This indicates strong growth over time, surpassing many typical benchmarks. However, it's important to note the max drawdown of -33.22%, which signifies significant potential losses during market downturns. This volatility is typical for equity-heavy portfolios. While past performance is promising, it's essential to prepare for potential future fluctuations by considering diversification strategies that could mitigate such risks.

Projection Info

Monte Carlo simulations, which use historical data to project future outcomes, reveal a wide range of potential returns. The portfolio's 50th percentile projection shows a growth of 478.9%, while the 5th percentile indicates a potential decline of 90.5%. These simulations highlight the uncertainty inherent in investing and the potential for both substantial gains and losses. While the average annualized return of 14.86% is encouraging, it's crucial to remember that these projections are not guarantees and should be used as one of many tools in decision-making.

Asset classes Info

  • Stocks
    100%

The portfolio is entirely composed of stocks, with no allocation to bonds, real estate, or other asset classes. This lack of diversification could increase vulnerability to market volatility. Diversifying across multiple asset classes can help mitigate risks and provide more stable returns over time. For instance, adding fixed-income securities or international equities could balance the portfolio and reduce exposure to a single economic region or market condition.

Sectors Info

  • Technology
    32%
  • Financials
    13%
  • Consumer Discretionary
    12%
  • Health Care
    12%
  • Telecommunications
    10%
  • Industrials
    7%
  • Consumer Staples
    6%
  • Energy
    4%
  • Basic Materials
    2%
  • Utilities
    1%
  • Real Estate
    1%

The portfolio's sector allocation is heavily weighted towards technology (32%), followed by financial services (13%) and consumer cyclicals (12%). This concentration in tech could lead to higher volatility, especially during periods of rising interest rates or market corrections. While sector concentration can drive growth, it also poses risks. Balancing exposure across more sectors could help stabilize returns and reduce dependency on the performance of a single industry.

Regions Info

  • North America
    100%

Geographically, the portfolio is exclusively focused on North America, leaving it exposed to regional economic fluctuations. While the U.S. market has performed well historically, global diversification can reduce risk and capture growth opportunities in other regions. Considering investments in Europe, Asia, or emerging markets could provide a hedge against U.S.-specific risks and enhance overall portfolio resilience.

Market capitalization Info

  • Mega-cap
    44%
  • Large-cap
    36%
  • Mid-cap
    19%
  • Small-cap
    2%

The portfolio predominantly consists of mega-cap (44%) and big-cap (36%) stocks, with minimal exposure to small-cap (2%) and no micro-cap stocks. This allocation favors established companies with stable earnings, but it may miss out on the growth potential of smaller, more dynamic companies. Including a broader range of market capitalizations could enhance growth prospects and provide a more balanced risk profile.

Redundant positions Info

  • Vanguard S&P 500 ETF
    Schwab U.S. Large-Cap Growth ETF
    High correlation

The Vanguard S&P 500 ETF and Schwab U.S. Large-Cap Growth ETF are highly correlated, meaning they tend to move in the same direction. While this can amplify gains in a rising market, it also increases risk during downturns. Reducing overlap by incorporating less correlated assets could improve diversification and reduce overall portfolio risk, enhancing stability during turbulent market conditions.

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's current structure could be optimized using the Efficient Frontier, which seeks the best risk-return ratio. However, before optimizing, addressing the overlap between correlated assets is recommended. This step would enhance diversification benefits, making the portfolio more resilient. By reallocating within existing holdings, the portfolio can achieve a more efficient balance, potentially improving returns without increasing risk.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.60%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard S&P 500 ETF 1.30%
  • Weighted yield (per year) 1.49%

The portfolio's dividend yield stands at 1.49%, with the Schwab U.S. Dividend Equity ETF contributing a significant portion at 3.60%. Dividends provide a steady income stream, which can be particularly beneficial in volatile markets. However, the overall yield is modest, reflecting the growth focus of the portfolio. Increasing exposure to high-dividend stocks or funds could boost income, providing a buffer against market fluctuations.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.04%

The portfolio's total expense ratio (TER) is impressively low at 0.04%, reflecting cost-efficient management. Low costs are advantageous as they enhance net returns over time, allowing more of the investment's growth to benefit the investor. Maintaining a focus on minimizing fees is crucial for long-term success, as even small cost reductions can significantly impact overall portfolio performance.

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