Balanced Portfolio with Strong U.S. Focus and Technology Bias Shows High Historic Returns but Low Diversification
Report created on Dec 4, 2024Risk profile
4/7
Diversification profile
2/5
Positions
-
VO Vanguard S&P 500 ETF
VOO - US9229083632 77.66% -
QQ Invesco NASDAQ 100 ETF
QQQM - US46138G6492 11.37% -
SC Schwab U.S. Dividend Equity ETF
SCHD - US8085247976 10.96%
The portfolio is heavily weighted towards the Vanguard S&P 500 ETF, making up over 77% of the total. This concentration indicates a strong focus on large-cap U.S. equities, with the remaining investments in the Invesco NASDAQ 100 ETF and Schwab U.S. Dividend Equity ETF. Such a composition shows a preference for well-established companies but lacks diversification across different asset classes. This could lead to increased vulnerability to market volatility. To mitigate risk, consider diversifying into different asset classes like bonds or international equities to achieve a more balanced portfolio.
Growth
Historically, the portfolio has performed exceptionally well, with a CAGR of 15.98%. This impressive growth rate suggests that the selected ETFs have delivered strong returns over time. However, the max drawdown of -24.53% highlights the potential risks involved. The portfolio's performance is driven by a few high-return days, emphasizing the importance of timing. To maintain a consistent growth trajectory, consider regular rebalancing and periodic reviews to ensure alignment with long-term financial goals.
Projection
A Monte Carlo simulation, using 1,000 iterations, shows a median return of 665.66% for a hypothetical investment. This suggests a favorable outlook, with 998 simulations showing positive returns. Monte Carlo simulations provide a range of potential outcomes, helping to assess the portfolio's risk and return profile. While these projections are promising, they are not guarantees. To enhance future performance, consider incorporating a wider range of assets to cushion against potential downturns and to take advantage of diverse market conditions.
Asset classes
- Stocks 100%
The portfolio is almost entirely composed of stocks, with a minuscule portion in cash. This heavy stock allocation indicates a high-risk, high-reward strategy, typical of growth-focused portfolios. While stocks can offer significant returns, they also come with increased volatility. To reduce risk, consider diversifying into other asset classes like bonds or real estate, which can provide stability and income during market downturns. Such diversification can help achieve a more balanced risk-return profile.
Sectors
- Technology 33%
- Financials 12%
- Health Care 11%
- Consumer Discretionary 11%
- Telecommunications 9%
- Industrials 8%
- Consumer Staples 7%
- Energy 4%
- Utilities 2%
- Basic Materials 2%
- Real Estate 2%
Sector allocation is heavily skewed towards technology, making up over 32% of the portfolio. Other significant sectors include financial services, healthcare, and consumer cyclicals. This concentration in a few sectors can lead to increased volatility, especially if these sectors face downturns. To enhance stability, consider reallocating some investments into underrepresented sectors like utilities or real estate. A more even sector distribution can reduce risk and provide a buffer against sector-specific downturns.
Regions
- North America 99%
- Europe Developed 1%
The portfolio is overwhelmingly concentrated in North America, with over 99% of assets allocated there. This geographic focus limits exposure to global markets and can increase vulnerability to regional economic shifts. To achieve better diversification, consider incorporating international equities from regions like Europe or Asia. This can provide exposure to different economic cycles and growth opportunities, reducing the portfolio's dependency on North American market performance.
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 by exploring the efficient frontier, which balances risk and return. Moving along this curve can help transition to either a riskier or more conservative portfolio. For those seeking higher returns, increasing exposure to growth-oriented assets might be beneficial. Conversely, for a more conservative approach, incorporating bonds or other low-volatility assets can reduce risk. Before making changes, assess current financial goals and risk tolerance to ensure alignment with investment strategies.
Dividends
- Invesco NASDAQ 100 ETF 0.60%
- Schwab U.S. Dividend Equity ETF 3.30%
- Vanguard S&P 500 ETF 1.20%
- Weighted yield (per year) 1.36%
The portfolio offers a modest total dividend yield of 1.36%, with the Schwab U.S. Dividend Equity ETF contributing the highest yield at 3.3%. Dividends can provide a steady income stream, which can be reinvested for compound growth. However, the overall yield is relatively low, indicating a growth-oriented focus. To increase income, consider adding higher-yielding investments or dividend-focused funds. This can enhance cash flow and provide a cushion during periods of market volatility.
Ongoing product costs
- Invesco NASDAQ 100 ETF 0.15%
- Schwab U.S. Dividend Equity ETF 0.06%
- Vanguard S&P 500 ETF 0.03%
- Weighted costs total (per year) 0.05%
With a total expense ratio of 0.05%, the portfolio is cost-efficient, minimizing the drag on returns. Low costs are crucial for maximizing net gains, especially over the long term. The Vanguard S&P 500 ETF, with the lowest expense ratio, contributes significantly to this efficiency. Maintaining low costs should remain a priority, as it allows more of the investment returns to compound over time. Regularly review and compare expense ratios to ensure continued cost-effectiveness.
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