Balanced Risk Portfolio with Strong Technology Focus and Moderate Diversification

Report created on Jul 24, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio is composed of seven ETFs, with a significant portion allocated to the Vanguard Total Stock Market Index Fund ETF Shares at 50%. This is followed by the Schwab U.S. Large-Cap Growth ETF at 17% and the Vanguard Information Technology Index Fund ETF Shares at 11%. The rest is spread across other ETFs with smaller allocations. This composition indicates a strong focus on U.S. equities, particularly in the technology sector. While the portfolio is moderately diversified, it leans heavily towards stocks, which can impact risk levels and performance.

Growth Info

Historically, the portfolio has performed well, with a compound annual growth rate (CAGR) of 14.63%. A hypothetical initial investment would have experienced significant growth, albeit with a maximum drawdown of 26.5%, indicating periods of substantial volatility. The returns are concentrated in a few days, highlighting the importance of staying invested to capture these gains. This historical performance suggests the potential for high returns, but also underscores the need for a risk management strategy to handle the volatility.

Projection Info

Using a Monte-Carlo simulation with 1,000 simulations, the portfolio's future performance was projected. Assuming a hypothetical initial investment, the simulations indicate a 50th percentile outcome of 425.24% growth, with an annualized return of 14.18%. The high number of simulations with positive returns (994 out of 1,000) suggests a favorable outlook. However, as with any projection, these results are not guaranteed and should be interpreted with caution, considering potential market changes and unforeseen events.

Asset classes Info

  • Stocks
    93%
  • Cash
    7%

The portfolio's asset allocation is predominantly in stocks, making up approximately 92.7% of the total. Cash and bonds are minimally represented, at around 7.2% and 0.02%, respectively. This allocation indicates a high-risk, high-reward strategy, typical of a growth-focused portfolio. To balance risk, it's generally advisable to consider increasing exposure to bonds or other low-risk asset classes, which can provide stability and income, especially during market downturns.

Sectors Info

  • Technology
    38%
  • Financials
    10%
  • Health Care
    9%
  • Consumer Discretionary
    9%
  • Telecommunications
    8%
  • Industrials
    7%
  • Consumer Staples
    4%
  • Energy
    3%
  • Basic Materials
    2%
  • Real Estate
    2%
  • Utilities
    2%

The sector allocation shows a heavy concentration in technology, which accounts for nearly 38% of the portfolio. Other significant sectors include financial services and healthcare. This concentration in technology can lead to higher volatility, especially if the tech sector experiences downturns. Diversifying across more sectors could help mitigate sector-specific risks and provide a more stable return profile. Balancing sector exposure can enhance resilience against market fluctuations.

Regions Info

  • North America
    87%
  • Europe Developed
    3%
  • Asia Emerging
    1%
  • Japan
    1%
  • Asia Developed
    1%

Geographically, the portfolio is heavily weighted towards North America, which constitutes about 87% of the total allocation. Other regions, including Europe and Asia, have minimal representation. This geographic concentration can be risky if the U.S. market underperforms. Increasing exposure to international markets could provide diversification benefits and reduce reliance on the U.S. economy. A more globally diversified portfolio can help capture growth opportunities worldwide and hedge against regional downturns.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Schwab U.S. Large-Cap Growth ETF
    Vanguard Information Technology Index Fund ETF Shares
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio includes several highly correlated assets, particularly within the technology and large-cap growth ETFs. These correlations suggest that these assets tend to move in the same direction, which can diminish diversification benefits. While these assets may perform well together, they also pose a risk if the correlated sectors face downturns. Reducing overlapping positions and introducing less correlated assets can enhance diversification and potentially improve risk-adjusted returns.

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.

To optimize the portfolio, focus first on reducing the high correlation among assets, particularly within the technology sector. This can be achieved by diversifying into less correlated sectors and asset classes, potentially improving the portfolio's risk-return profile. Moving along the efficient frontier can help achieve a more balanced portfolio, either by increasing exposure to bonds for a conservative approach or reallocating to higher-growth stocks for a riskier stance. Optimization should align with personal risk tolerance and financial goals.

Dividends Info

  • Invesco NASDAQ 100 ETF 0.60%
  • Schwab U.S. Dividend Equity ETF 3.40%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • iShares® 0-3 Month Treasury Bond ETF 5.20%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.52%

The overall dividend yield of the portfolio is 1.52%, with the Schwab U.S. Dividend Equity ETF contributing the highest yield at 3.4%. While dividends provide a steady income stream, the portfolio's yield is relatively low, reflecting its growth orientation. Investors seeking higher income might consider incorporating more dividend-focused or income-generating assets. Balancing growth and income can create a more stable investment strategy, especially for those nearing retirement or needing regular cash flow.

Ongoing product costs Info

  • Invesco NASDAQ 100 ETF 0.15%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • iShares® 0-3 Month Treasury Bond ETF 0.07%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.05%

The portfolio's total expense ratio (TER) is 0.05%, indicating a cost-efficient structure. The low costs are primarily due to the use of ETFs, which generally have lower fees compared to mutual funds. Keeping costs low is crucial for maximizing net returns, as high fees can erode gains over time. While the current cost structure is favorable, it's essential to regularly review and compare with other investment options to ensure continued cost-effectiveness and alignment with financial goals.

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