Balanced Risk Portfolio with Low Diversification and High Exposure to US Equities

Risk profile

  • Secure
    Speculative

The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.

Diversification profile

  • Focused
    Diversified

The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.

What type of investor this portfolio is suitable for

Balanced Investors

This portfolio is suitable for investors with a moderate risk tolerance who seek exposure to growth opportunities in the US equity market. These investors are typically comfortable with market volatility and have a long-term investment horizon, aiming for capital appreciation rather than immediate income. They may be willing to accept periods of market downturns in exchange for the potential of higher returns over time. Such investors often prioritize low-cost investment options and appreciate the simplicity of a concentrated, yet broad-based equity exposure.

Positions

  • Vanguard S&P 500 ETF
    VOO - US9229083632
    100.00%

The portfolio is composed entirely of the Vanguard S&P 500 ETF, which indicates a focus on large-cap US equities. This results in a low diversification score, as the portfolio is concentrated in a single ETF. While this provides exposure to a broad range of sectors within the S&P 500, it lacks diversification across asset classes and geographies. To enhance diversification, consider incorporating other asset types like bonds or international equities, which can reduce risk and potentially improve returns over time.

Growth

Historically, the portfolio has shown impressive performance with a compound annual growth rate (CAGR) of 13.14%. However, it also experienced a significant maximum drawdown of -33.97%, highlighting vulnerability during market downturns. This reflects the inherent volatility of equity markets, particularly those heavily weighted in stocks like the S&P 500. To mitigate potential losses in future downturns, consider diversifying into less volatile asset classes, which can provide stability and preserve capital during turbulent market conditions.

Projection

A Monte Carlo simulation, based on a hypothetical initial investment, projects a wide range of potential outcomes for the portfolio. With 1,000 simulations, the 50th percentile suggests a substantial growth, while the 5th percentile indicates minimal gains. This variability underscores the uncertainty inherent in equity markets. By diversifying the portfolio, the range of potential outcomes can be narrowed, providing more predictable returns. This approach can help align the portfolio with specific financial goals and risk tolerances.

Asset classes

  • Stocks
    100%
  • Cash
    0%

The portfolio is heavily skewed towards stocks, with a minimal allocation to cash. This allocation aligns with a growth-focused strategy but lacks the balance provided by other asset classes like bonds or commodities. A more balanced asset allocation can offer downside protection and smoother returns over time. Consider introducing a mix of fixed-income securities to create a more resilient portfolio that can better withstand market fluctuations.

Sectors

  • Technology
    31%
  • Financials
    13%
  • Health Care
    12%
  • Consumer Discretionary
    11%
  • Telecommunications
    9%
  • Industrials
    8%
  • Consumer Staples
    6%
  • Energy
    4%
  • Real Estate
    2%
  • Utilities
    2%
  • Basic Materials
    2%

The sector allocation within the Vanguard S&P 500 ETF is diverse, with significant exposure to technology, financial services, and healthcare. This reflects the broader market's emphasis on these sectors, which can drive growth but also introduce sector-specific risks. To mitigate these risks, consider adding exposure to sectors with lower representation, such as utilities or consumer defensive, which can provide stability during economic downturns.

Regions

  • North America
    99%
  • Europe Developed
    1%
  • Asia Developed
    0%

Geographically, the portfolio is overwhelmingly concentrated in North America, with negligible exposure to other regions. This lack of international diversification can lead to increased risk due to regional economic downturns or policy changes. To reduce this risk, consider diversifying into international equities, which can provide exposure to different economic cycles and growth opportunities. This approach can enhance the portfolio's resilience and long-term growth potential.

Dividends

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

The portfolio's dividend yield is modest at 1.2%, reflecting the income generated by the Vanguard S&P 500 ETF. While dividends can provide a steady income stream, the focus on growth stocks within the S&P 500 may limit dividend potential. To enhance income, consider incorporating higher-yielding assets, such as dividend-focused ETFs or REITs, which can complement the growth-oriented nature of the current portfolio and provide a more balanced income stream.

Ongoing product costs

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

The portfolio benefits from exceptionally low costs, with a total expense ratio (TER) of just 0.03%. This cost efficiency is a significant advantage, as it allows more of the portfolio's returns to be retained. Keeping investment costs low is crucial for maximizing long-term returns, and this portfolio does an excellent job in that regard. Continue to prioritize low-cost investment options to maintain this advantage and enhance overall portfolio performance.

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