A balanced portfolio with low diversity and a focus on US equities

Report created on Jan 13, 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 is heavily weighted towards US equities, with two Vanguard ETFs making up 70% of the allocation. This concentration in large-cap US stocks can lead to a lack of diversification. A more balanced portfolio might include international equities or bonds to mitigate risks associated with a single market. Comparing to common benchmarks, this portfolio is more concentrated in US equities, which can be both a strength and a limitation depending on market conditions. Incorporating a broader range of asset classes could enhance diversification and align better with a balanced risk profile.

Growth Info

Historically, the portfolio has performed well, with a Compound Annual Growth Rate (CAGR) of 14.19%. This indicates strong returns, especially when compared to typical market benchmarks. However, the maximum drawdown of -23.78% highlights potential volatility, which could be concerning for risk-averse investors. Considering historical performance is useful, but it's important to remember that past success doesn’t guarantee future results. Maintaining a diversified portfolio can help manage risks and sustain performance during market downturns.

Projection Info

Forward projections using Monte Carlo simulations suggest a wide range of potential outcomes for the portfolio. This method uses historical data to project future performance, with a median outcome showing a potential 512.08% return. While these projections are promising, they rely on past data, which may not account for future market changes. It's crucial to be cautious and consider these projections as one of many tools for planning. Regularly reviewing and adjusting the portfolio can help align it with changing market conditions and personal goals.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with 99.7% allocated to equities. This lack of asset class diversity could increase vulnerability to market volatility. A more diversified allocation, including fixed income or alternative assets, could provide stability and reduce risk. Benchmark comparisons often suggest a mix of asset classes to achieve balanced growth and risk management. By exploring additional asset classes, the portfolio could better withstand market fluctuations and align with a balanced investment strategy.

Sectors Info

  • Technology
    30%
  • Financials
    13%
  • Health Care
    11%
  • Consumer Discretionary
    11%
  • Telecommunications
    9%
  • Industrials
    8%
  • Consumer Staples
    7%
  • Energy
    5%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    2%

The sector allocation shows a heavy concentration in technology, at nearly 30%, which may lead to increased volatility, especially during tech market downturns. Financial services and healthcare also have notable allocations. While sector diversity is present, the high tech exposure suggests potential sensitivity to market changes, such as interest rate hikes. A more balanced sector allocation could enhance stability and reduce sector-specific risks. Aligning sector weights with broader market benchmarks might improve diversification and performance consistency.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

The geographic allocation is predominantly North American, with over 99% exposure. This concentration limits the benefits of global diversification, which can help mitigate regional economic risks. Including more international equities could provide exposure to different economic cycles and growth opportunities. Benchmarks often include a mix of global assets to achieve broader diversification. Expanding geographic exposure could enhance the portfolio's resilience and align it with a more globally diversified investment strategy.

Redundant positions Info

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

The portfolio includes highly correlated assets, notably the Vanguard Total Stock Market Index Fund ETF and the Vanguard S&P 500 ETF. This high correlation means these assets tend to move together, which can limit diversification benefits. During market downturns, such correlations might increase overall portfolio risk. Reducing overlapping assets and introducing less correlated investments could improve diversification and risk management. Considering assets with different market exposures or asset classes might enhance the portfolio's overall stability.

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 the portfolio for risk and return using the Efficient Frontier, addressing the high correlation between certain assets is crucial. The Efficient Frontier aims to maximize returns for a given level of risk, but overlapping assets may not provide true diversification benefits. By replacing highly correlated assets with less correlated ones, the portfolio could achieve a more favorable risk-return balance. Optimization should focus on adjusting current holdings to improve efficiency and align with investment goals.

Dividends Info

  • Invesco NASDAQ 100 ETF 0.60%
  • Schwab U.S. Dividend Equity ETF 3.70%
  • Vanguard S&P 500 ETF 1.30%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 1.71%

The portfolio's dividend yield stands at 1.71%, with the Schwab U.S. Dividend Equity ETF contributing a significant 3.7%. Dividends can provide a steady income stream and contribute to total returns, which is beneficial for income-focused investors. However, the overall yield is moderate, suggesting room for improvement. For investors seeking higher income, exploring additional dividend-focused assets or funds could enhance yield. Balancing growth and income strategies might align better with long-term financial goals.

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) 0.05%

The portfolio boasts impressively low costs, with a total expense ratio of just 0.05%. This low cost structure supports better long-term performance by minimizing fees that can erode returns over time. Keeping costs low is crucial for maximizing investment growth, especially in a predominantly equity-based portfolio. This alignment with cost-efficient investing practices is commendable. Continuously monitoring and maintaining low-cost investments can help sustain this advantage and enhance overall returns.

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