Balanced Portfolio with Low Diversity and High Correlation Among Core ETFs

Report created on Nov 26, 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 heavily weighted towards ETFs, with the Vanguard S&P 500 ETF and SPDR S&P 500 ETF Trust making up over half of the total allocation. This indicates a strong focus on large-cap U.S. equities. While these ETFs provide broad market exposure, the concentration in a few positions limits diversification. With single stocks like Walmart, NVIDIA, and JPMorgan Chase, the portfolio adds a touch of individual company exposure. However, the overall composition suggests a focus on growth through large-cap equities, which may not provide sufficient risk mitigation during market downturns.

Growth Info

Historically, this portfolio has performed exceptionally well, with a CAGR of 22.15%. This impressive growth rate suggests that the portfolio has benefited from a strong bull market. However, the maximum drawdown of -29.8% indicates vulnerability during market corrections. The portfolio's performance is concentrated in a small number of days, highlighting its reliance on specific market movements. While past performance is not indicative of future results, it's essential to recognize the potential volatility and prepare for periods of underperformance. A more diversified approach could help smooth out returns over time.

Projection Info

Using a Monte Carlo simulation with 1,000 runs, the portfolio shows a wide range of potential outcomes. This statistical method provides insight into future performance by simulating various market conditions. The median outcome suggests a robust growth potential of 2,138.57%, but the 5th percentile warns of returns as low as 334.32%. With 999 simulations showing positive returns, the outlook is optimistic, though the high variability underscores the importance of diversification. Investors should consider adjusting the portfolio to balance potential gains with acceptable risk levels.

Asset classes Info

  • Stocks
    99%
  • No data
    1%

The portfolio is overwhelmingly invested in stocks, accounting for over 99% of the allocation. This heavy concentration in equities indicates a growth-oriented strategy but also exposes the portfolio to significant market volatility. A more balanced mix of asset classes, such as bonds or alternative investments, could provide stability and reduce risk. While equities offer the potential for high returns, incorporating other asset classes can help cushion the impact of market downturns and offer a more consistent performance over time.

Sectors Info

  • Technology
    33%
  • Financials
    17%
  • Consumer Staples
    16%
  • Consumer Discretionary
    7%
  • Health Care
    7%
  • Telecommunications
    7%
  • Industrials
    5%
  • Energy
    2%
  • Utilities
    2%
  • Real Estate
    1%
  • Basic Materials
    1%

The sector allocation reveals a strong bias towards Technology, which comprises over 33% of the portfolio. This focus on tech stocks has likely contributed to the portfolio's strong historical performance, given the sector's growth in recent years. However, this concentration also increases vulnerability to sector-specific risks. A more diversified sector allocation could help mitigate these risks and provide a smoother performance. Balancing exposure across various sectors, such as healthcare, financials, and consumer goods, can help reduce reliance on any single market segment.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is almost entirely focused on North America, with over 99% of assets allocated to this region. This narrow geographic focus limits exposure to international markets and their potential growth opportunities. While the U.S. market has performed well, diversification across different regions can provide a hedge against regional economic downturns. Expanding geographic exposure to include developed and emerging markets could enhance diversification and capture growth from various global economies.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Vanguard S&P 500 ETF
    SPDR S&P 500 ETF Trust
    High correlation

The portfolio exhibits high correlation among its core ETFs, particularly the Invesco NASDAQ 100 ETF, Vanguard S&P 500 ETF, and SPDR S&P 500 ETF Trust. This overlap reduces the diversification benefits that these funds typically provide. High correlation means these assets often move in the same direction, increasing the portfolio's overall risk. To enhance diversification, consider reducing exposure to highly correlated assets and introducing investments that have a lower correlation with existing positions. This approach can help mitigate risk and improve the portfolio's resilience.

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 optimization chart suggests that before seeking optimization, addressing the high correlation among core ETFs is crucial. By reducing overlapping assets, the portfolio can achieve better diversification, enhancing its risk-return profile. Moving along the efficient frontier, investors can adjust their portfolio to be riskier or more conservative based on their preferences. A riskier portfolio might include more growth-oriented stocks, while a conservative approach could incorporate bonds or other less volatile assets. This strategic adjustment can help align the portfolio with personal risk tolerance and financial goals.

Dividends Info

  • JPMorgan Equity Premium Income ETF 7.00%
  • JPMorgan Chase & Co 1.80%
  • Invesco NASDAQ 100 ETF 0.60%
  • SPDR S&P 500 ETF Trust 1.20%
  • Vanguard S&P 500 ETF 1.20%
  • Walmart Inc 0.90%
  • Weighted yield (per year) 1.30%

The portfolio's dividend yield stands at a modest 1.3%, with the JPMorgan Equity Premium Income ETF contributing the most at 7.0%. While dividends provide a steady income stream, the overall yield is relatively low due to the focus on growth stocks and ETFs. Investors seeking income may want to consider increasing exposure to dividend-paying stocks or funds. Balancing growth and income can provide a more stable return profile, especially during market volatility. A diversified approach to dividend income can enhance the portfolio's overall yield.

Ongoing product costs Info

  • JPMorgan Equity Premium Income ETF 0.35%
  • Invesco NASDAQ 100 ETF 0.15%
  • SPDR S&P 500 ETF Trust 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.06%

The portfolio's total expense ratio is a low 0.06%, indicating an efficient cost structure. This is primarily due to the low-cost Vanguard S&P 500 ETF and SPDR S&P 500 ETF Trust, which have minimal fees. Keeping costs low is crucial for maximizing long-term returns, as high fees can erode profits over time. Investors should continue to focus on cost-effective investment options while ensuring that these choices align with their overall strategy. Balancing low costs with diversification and risk management is key to optimizing the portfolio's performance.

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