Balanced Low Diversity Portfolio with High Tech Exposure and Strong Historical Performance

Report created on Dec 2, 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 comprises solely of the Vanguard S&P 500 ETF, indicating a concentrated investment strategy. This approach means the portfolio's performance is directly tied to the movements of the S&P 500 index. While this can lead to significant gains during market upswings, it also exposes the portfolio to market downturns. Diversifying beyond a single ETF could reduce risk and enhance stability. A more varied asset allocation could provide a buffer against market volatility and potentially improve long-term returns.

Growth Info

Historically, the portfolio has delivered impressive returns, with a compound annual growth rate (CAGR) of 14.09%. This strong performance reflects the overall growth of the S&P 500, which has been driven by robust corporate earnings and economic expansion. However, the portfolio has also experienced a maximum drawdown of -34%, highlighting its vulnerability during market corrections. To mitigate such risks, consider diversifying into other asset classes or strategies that can offer downside protection during volatile periods.

Projection Info

A Monte Carlo simulation, using a hypothetical initial investment, reveals a wide range of potential future outcomes. This method uses random sampling to predict the probability of different returns. The median scenario projects a 516.21% return, while even the 5th percentile outcome remains positive at 104.83%. Such projections underscore the portfolio's potential for substantial growth, but they also highlight the uncertainty inherent in market investments. Balancing this potential with risk management through diversification could be beneficial.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted in stocks, with 99.92% allocated to equities and a minimal cash position. This allocation suggests a strong growth orientation, capitalizing on the long-term appreciation potential of equities. However, the lack of fixed income or alternative investments may increase volatility and risk. Introducing bonds or other asset classes could provide diversification benefits, reducing overall portfolio risk and potentially smoothing returns over time.

Sectors Info

  • Technology
    33%
  • Financials
    13%
  • Health Care
    11%
  • Consumer Discretionary
    10%
  • Telecommunications
    9%
  • Industrials
    8%
  • Consumer Staples
    6%
  • Energy
    3%
  • Utilities
    3%
  • Real Estate
    2%
  • Basic Materials
    2%

Sector allocation reveals a significant concentration in technology, comprising 33.02% of the portfolio. This heavy tech weighting aligns with the broader market's trend towards digitalization and innovation. While tech has been a strong performer, overexposure could lead to increased risk if the sector faces downturns. Balancing sector exposure by including more defensive sectors, such as utilities or consumer staples, could provide stability and reduce reliance on one sector's performance.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is predominantly focused on North America, with 99.40% of assets allocated to this region. This concentration reflects the composition of the S&P 500 but limits exposure to international markets. Expanding geographic diversification could capture growth opportunities in emerging markets or developed regions outside North America. A more global allocation may enhance returns and reduce regional risk, offering a more balanced investment approach.

Dividends Info

  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.20%

The Vanguard S&P 500 ETF provides a modest dividend yield of 1.2%, contributing to total return through income generation. While this yield is relatively low compared to fixed income investments, it offers an additional income stream. Reinvesting dividends can enhance compounding returns over time. For investors seeking higher income, exploring dividend-focused strategies or funds could be an option, though this may involve taking on additional risk.

Ongoing product costs Info

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

The portfolio benefits from extremely low costs, with a Total Expense Ratio (TER) of just 0.03%. This low-cost structure maximizes net returns, as expenses can significantly erode investment gains over time. Keeping investment costs low is a crucial component of a successful long-term strategy. While the current cost structure is optimal, it's important to remain vigilant about expenses if considering additional investments or diversification into other funds.

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