Balanced Portfolio with Low Diversity and High Communication Services Exposure

Report created on Nov 24, 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 consists of a 50% allocation to the Vanguard S&P 500 ETF and 50% to Verizon Communications common stock. This composition reveals a balanced approach but with low diversification, as it heavily relies on just two positions. A balanced portfolio typically aims to manage risk while seeking growth. However, having only two positions increases exposure to specific risks. To enhance diversification, consider adding more assets across different sectors and asset classes, which can help mitigate risks associated with individual investments.

Growth Info

Historically, the portfolio has shown a compound annual growth rate (CAGR) of 9.67%, with a maximum drawdown of -26.29%. This indicates a solid historical performance with a significant downturn potential. Understanding past performance helps gauge how the portfolio might react under similar market conditions. To improve resilience, consider diversifying across more asset classes, which can help reduce the impact of downturns and potentially smooth out returns over time, while maintaining a balanced risk profile.

Projection Info

Using a Monte Carlo simulation with a hypothetical initial investment, the portfolio shows a wide range of potential outcomes. The simulation suggests a median return of 231.25% and an annualized return of 10.47%. Monte Carlo simulations provide insights into future performance by modeling various scenarios. This can help set realistic expectations and prepare for potential risks. To potentially increase returns, explore optimizing the portfolio's asset allocation, while keeping in mind the associated increase in risk.

Asset classes Info

  • Stocks
    100%

The portfolio is predominantly composed of stocks, accounting for 99.96% of its allocation, with a negligible cash position. This heavy stock allocation aligns with a growth-oriented strategy but increases volatility. Diversifying into other asset classes like bonds or real estate can help reduce risk and add stability. Consider gradually introducing these asset classes to achieve a more balanced allocation, which can enhance the portfolio's risk-return profile over the long term.

Sectors Info

  • Telecommunications
    55%
  • Technology
    17%
  • Financials
    6%
  • Health Care
    6%
  • Consumer Discretionary
    5%
  • Industrials
    4%
  • Consumer Staples
    3%
  • Energy
    2%
  • Utilities
    1%
  • Real Estate
    1%
  • Basic Materials
    1%

The portfolio is heavily concentrated in Communication Services, with a 54.56% allocation, primarily due to Verizon's weight. This sector concentration exposes the portfolio to industry-specific risks. A well-diversified portfolio typically includes a broader range of sectors to mitigate such risks. Consider reallocating some of the investment into underrepresented sectors, which can help balance the portfolio and reduce the potential impact of sector-specific downturns.

Regions Info

  • North America
    100%

Geographically, the portfolio is almost entirely focused on North America, with 99.7% of its assets allocated there. This regional concentration limits exposure to international markets, which can offer growth opportunities and diversification benefits. Expanding geographic allocation to include developed and emerging markets can provide access to different economic cycles and reduce region-specific risks. Consider gradually increasing exposure to international markets to enhance diversification.

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 be optimized to achieve higher returns by moving along the efficient frontier. This involves adjusting the asset allocation to achieve a more efficient risk-return balance. However, the current portfolio's low diversification should be addressed first. By incorporating a broader range of asset classes and sectors, the portfolio can become more resilient. Once diversification is improved, focus on optimizing for higher returns or lower risk, depending on the desired investment strategy.

Dividends Info

  • Vanguard S&P 500 ETF 1.20%
  • Verizon Communications Inc 6.20%
  • Weighted yield (per year) 3.70%

The portfolio's dividend yield stands at 3.7%, with Verizon contributing a substantial 6.2% yield. Dividends provide a steady income stream and can enhance total returns. The current yield is attractive, especially for income-focused investors. To maintain or improve dividend income, consider adding other high-yielding assets. However, ensure that the pursuit of yield doesn't compromise the overall diversification and risk profile of the portfolio.

Ongoing product costs Info

  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.02%

The portfolio's costs are impressively low, with the Vanguard S&P 500 ETF having a Total Expense Ratio (TER) of 0.03%. Low costs are crucial for maximizing net returns over time. Keeping investment costs low allows more of the portfolio's returns to compound, enhancing long-term growth. Continue to prioritize low-cost investment options and regularly review expenses to ensure they remain competitive. This approach will help maintain the portfolio's cost efficiency.

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