Balanced portfolio with strong U.S. focus and high correlation among holdings
Report created on Jan 12, 2025Risk profile
4/7
Diversification profile
2/5
Positions
-
SC Schwab U.S. Broad Market ETF
SCHB - US8085241029 50.00% -
SC Schwab U.S. Dividend Equity ETF
SCHD - US8085247976 25.00% -
SC Schwab U.S. Large-Cap Growth ETF
SCHG - US8085243009 25.00%
The portfolio is dominated by U.S. equities, with three ETFs that represent the broad market, dividend equities, and large-cap growth. This composition leans heavily towards stocks, with minimal cash and bond exposure. Compared to a typical balanced portfolio, which might include more bonds for stability, this one is concentrated in equities, increasing its potential for growth but also its volatility. For a more balanced approach, consider adding bonds or international equities to diversify and reduce risk.
Growth
Historically, this portfolio has shown impressive growth, with a Compound Annual Growth Rate (CAGR) of 14.31%. This performance is strong, especially in comparison to typical market benchmarks. However, it also experienced a significant maximum drawdown of -33.86%, indicating vulnerability during market downturns. While past performance is not indicative of future results, maintaining awareness of potential volatility can help in managing expectations and planning for the long term.
Projection
Monte Carlo simulations, which use historical data to predict future outcomes, suggest a wide range of potential returns. The median (50th percentile) projection is a 528.3% increase, while the 5th percentile suggests a minimal gain. Although these projections are based on past data and not guarantees, they highlight the portfolio's potential for high returns alongside considerable risk. Diversifying further could help manage this risk and improve the probability of achieving desired outcomes.
Asset classes
- Stocks 100%
With nearly 100% allocation to stocks, this portfolio lacks diversification across different asset classes. Typically, balanced portfolios include a mix of stocks, bonds, and sometimes cash to manage risk. The absence of bonds here means the portfolio may be more susceptible to market volatility. Introducing a bond component could provide stability and income, which can be beneficial during periods of stock market downturns.
Sectors
- Technology 31%
- Financials 14%
- Consumer Discretionary 12%
- Health Care 11%
- Telecommunications 9%
- Industrials 8%
- Consumer Staples 6%
- Energy 5%
- Basic Materials 2%
- Real Estate 1%
- Utilities 1%
The portfolio's sector allocation is heavily weighted towards technology, which comprises over 30%. While tech has been a high-performing sector, this concentration can lead to increased volatility, especially if the sector faces challenges. A more balanced sector allocation can help mitigate this risk. Diversifying into underrepresented sectors might provide stability and capture growth opportunities across different economic environments.
Regions
- North America 99%
Geographically, the portfolio is overwhelmingly concentrated in North America, with over 99% exposure. This limits the benefits of international diversification, which can reduce risk by spreading investments across different economic regions. Increasing exposure to international markets could enhance diversification and potentially improve returns by tapping into growth opportunities outside the U.S.
Redundant positions
-
High correlationSchwab U.S. Broad Market ETFSchwab U.S. Large-Cap Growth ETF
The portfolio's high correlation between the broad market and large-cap growth ETFs suggests limited diversification benefits. When assets move together, the portfolio is more vulnerable to market swings. Reducing this correlation by diversifying into less correlated assets can help smooth out returns and provide a buffer during periods of market stress.
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 benefit from optimization using the Efficient Frontier, which aims to achieve the best possible risk-return ratio. However, this process involves adjusting the current asset allocation to reduce risk without sacrificing potential returns. By addressing the high correlation and sector concentration, the portfolio can be optimized for a more balanced risk-return profile.
Dividends
- Schwab U.S. Broad Market ETF 0.90%
- Schwab U.S. Dividend Equity ETF 3.70%
- Schwab U.S. Large-Cap Growth ETF 0.40%
- Weighted yield (per year) 1.48%
The portfolio's dividend yield stands at 1.48%, with the Dividend Equity ETF contributing significantly at 3.7%. Dividends can provide a steady income stream and are particularly attractive in low-interest-rate environments. For investors seeking regular income, maintaining or increasing exposure to dividend-paying assets could be beneficial, while ensuring that diversification is not compromised.
Ongoing product costs
- Schwab U.S. Broad Market ETF 0.03%
- Schwab U.S. Dividend Equity ETF 0.06%
- Schwab U.S. Large-Cap Growth ETF 0.04%
- Weighted costs total (per year) 0.04%
With a Total Expense Ratio (TER) of 0.04%, the portfolio's costs are impressively low, supporting better long-term performance. Low fees mean more of your investment returns stay in your pocket, compounding over time. This efficient cost structure is a positive aspect of the portfolio, allowing for more flexibility in making adjustments without significant cost implications.
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