Balanced Portfolio with High U.S. Exposure and Tech Focused, Suitable for Moderate Risk Takers
Report created on Jul 9, 2024Risk profile
4/7
Diversification profile
4/5
Positions
-
VO Vanguard S&P 500 ETF
VOO - US9229083632 69.57% -
VX Vanguard Total International Stock Index Fund ETF Shares
VXUS - US9219097683 19.10% -
QQ Invesco QQQ Trust
QQQ - US46090E1038 10.51% -
QQ Invesco NASDAQ 100 ETF
QQQM - US46138G6492 0.82%
The portfolio is heavily weighted towards U.S. equities, with a significant portion in the Vanguard S&P 500 ETF. This composition suggests a strong reliance on the performance of large-cap U.S. stocks. The inclusion of the Vanguard Total International Stock Index Fund ETF adds some international diversification, though it's relatively minor. This setup provides a solid foundation but leans heavily on the U.S. market. While this approach can capture significant growth, it may miss opportunities in underrepresented regions. Diversifying further could help balance potential risks and rewards, especially in less correlated markets.
Growth
Historically, the portfolio has demonstrated strong performance with a compound annual growth rate (CAGR) of 14.19%. This impressive growth indicates effective past allocation, especially with the high exposure to U.S. equities. However, the maximum drawdown of -26.2% highlights the volatility and potential risk involved. Understanding these metrics is crucial as they reflect both the portfolio's growth potential and its susceptibility to market downturns. To mitigate such risks, consider exploring strategies that maintain growth potential while reducing drawdown, such as incorporating more defensive assets or diversifying further.
Projection
Using a Monte Carlo simulation, which models potential future returns by simulating thousands of possible outcomes, the portfolio shows promising projections. With 1,000 simulations, the median expected growth is 441.24%, and the annualized return is 15.13%. This suggests a strong likelihood of positive returns, with 991 simulations yielding gains. However, it's important to remember that these are hypothetical scenarios. While the projections are optimistic, maintaining a balanced approach and staying informed about market conditions can help manage expectations and adapt to changing circumstances.
Asset classes
- Stocks 100%
The portfolio is predominantly invested in stocks, comprising 99.64% of the total allocation. This high concentration in equities suggests a focus on growth, which can lead to substantial returns over time. However, the lack of diversification across asset classes exposes the portfolio to heightened market volatility. While equities offer growth potential, incorporating other asset classes like bonds or real estate could add stability and reduce risk. A more balanced allocation can help cushion the impact of market fluctuations and provide a smoother investment journey.
Sectors
- Technology 31%
- Financials 13%
- Consumer Discretionary 11%
- Health Care 10%
- Telecommunications 9%
- Industrials 9%
- Consumer Staples 6%
- Energy 3%
- Basic Materials 3%
- Utilities 3%
- Real Estate 2%
The sector allocation reveals a heavy emphasis on technology, making up 31.24% of the portfolio. This focus aligns with recent market trends where tech has outperformed, but it also increases exposure to sector-specific risks. Other sectors like financial services, consumer cyclicals, and healthcare are represented but to a lesser extent. While this sector concentration can drive growth, it's essential to consider the potential impact of tech market downturns. Diversifying across more sectors could help mitigate these risks and provide a more balanced growth trajectory.
Regions
- North America 82%
- Europe Developed 8%
- Asia Emerging 3%
- Japan 3%
- Asia Developed 2%
- Australasia 1%
- Africa/Middle East 1%
Geographically, the portfolio is heavily skewed towards North America, particularly the U.S., which constitutes 81.69% of the allocation. While this reflects confidence in the U.S. market's strength, it limits exposure to growth opportunities in other regions. The remaining allocation is spread thinly across Europe, Asia, and other areas. This concentration presents a risk if the U.S. market faces downturns. Broadening geographic exposure could enhance diversification, tapping into potential growth in emerging markets or stabilizing returns with more developed regions.
Redundant positions
-
High correlationInvesco QQQ TrustInvesco NASDAQ 100 ETFVanguard S&P 500 ETF
The portfolio exhibits high correlations among its assets, particularly between the Invesco QQQ Trust, Invesco NASDAQ 100 ETF, and Vanguard S&P 500 ETF. This correlation suggests that these assets tend to move in tandem, which can amplify both gains and losses. While this can be advantageous in a rising market, it also increases vulnerability during downturns. To manage risk, consider incorporating assets with lower correlations, which can provide more stability and reduce the impact of market volatility on the overall portfolio.
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 shows potential for optimization, but high correlations among assets suggest a need for diversification first. Overlapping holdings in U.S. equities limit the benefits of optimization along the efficient frontier. To achieve a riskier or more conservative portfolio, consider adjusting the asset allocation by incorporating less correlated or different asset classes. Exploring additional regions or sectors can also diversify risk. Once the portfolio achieves a more balanced composition, optimizing along the efficient frontier can further enhance returns while managing risk effectively.
Dividends
- Invesco QQQ Trust 0.60%
- Invesco NASDAQ 100 ETF 0.60%
- Vanguard S&P 500 ETF 1.20%
- Vanguard Total International Stock Index Fund ETF Shares 3.00%
- Weighted yield (per year) 1.48%
The portfolio offers a moderate dividend yield of 1.48%, primarily driven by the Vanguard Total International Stock Index Fund ETF at 3.0% and the Vanguard S&P 500 ETF at 1.2%. While dividend income is not the primary focus of this portfolio, it provides a steady income stream that can enhance total returns. Investors seeking higher income may want to explore additional dividend-focused investments. Balancing growth with income-generating assets can improve cash flow and offer more consistent returns, especially during periods of market volatility.
Ongoing product costs
- Invesco QQQ Trust 0.20%
- Invesco NASDAQ 100 ETF 0.15%
- Vanguard S&P 500 ETF 0.03%
- Vanguard Total International Stock Index Fund ETF Shares 0.08%
- Weighted costs total (per year) 0.06%
The portfolio's total expense ratio (TER) is 0.06%, reflecting a cost-effective investment approach. This low-cost structure is primarily due to the Vanguard S&P 500 ETF's minimal fees. Keeping investment costs low is crucial as it directly impacts net returns. While the current costs are favorable, it's important to regularly review and ensure that fees remain competitive. Maintaining a focus on cost efficiency can enhance long-term performance by preserving a larger portion of returns, allowing for greater compounding over time.
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