Balanced Portfolio with Strong U.S. Focus and High-Tech Bias Shows Solid Performance Potential and Moderate Diversification

Report created on Jul 5, 2024

Risk profile Info

4/7
Balanced
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Diversification profile Info

3/5
Moderately Diversified
← Less diversification More diversification →

Positions

The portfolio is composed primarily of ETFs, with a strong emphasis on U.S. equities. Vanguard S&P 500 ETF dominates the portfolio, making up 60%, followed by Invesco NASDAQ 100 ETF and Avantis U.S. Small Cap Value ETF. This allocation indicates a preference for large-cap U.S. stocks with a mix of growth and value. While the inclusion of the Vanguard Total International Stock Index Fund ETF adds some global exposure, the portfolio remains heavily weighted towards the U.S., suggesting a potential home bias. This composition highlights the need for a more diversified approach to reduce risk exposure.

Growth Info

Historically, the portfolio has demonstrated impressive performance with a CAGR of 16.55%. This indicates strong growth over time, driven largely by the U.S. stock market's resilience and the tech sector's performance. However, the max drawdown of -26.04% suggests vulnerability during market downturns, which could be a concern for risk-averse investors. The concentration of returns in just 22 days further emphasizes the potential volatility. To maintain this growth trajectory, it's advisable to consider strategies that can mitigate drawdowns while capitalizing on market upswings.

Projection Info

Using a Monte Carlo simulation, we projected the portfolio's future performance based on historical data. With 1,000 simulations, the median scenario suggests a potential growth of 936.44%, while the best-case scenario reaches 1,389.03%. This analysis provides a range of possible outcomes, illustrating the inherent uncertainty in investment returns. The high number of simulations with positive returns is encouraging, indicating a robust probability of achieving gains. Investors should remain mindful of the variability in outcomes and consider diversifying further to enhance stability.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with a minuscule allocation to cash and other assets. This heavy stock allocation suggests a growth-oriented strategy, capitalizing on equity market returns. While stocks offer higher potential returns, they also come with increased volatility, which may not suit all investors. To balance risk and return, incorporating other asset classes like bonds could provide stability and income. This diversification can help cushion the portfolio during market downturns and reduce overall risk.

Sectors Info

  • Technology
    34%
  • Financials
    13%
  • Consumer Discretionary
    11%
  • Health Care
    9%
  • Telecommunications
    9%
  • Industrials
    8%
  • Consumer Staples
    5%
  • Energy
    4%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    2%

The sector allocation reveals a significant tilt towards technology, with 34.4% of the portfolio invested in this sector. Other sectors like financial services, consumer cyclicals, and healthcare also have notable representation. This sector concentration could lead to increased volatility, especially if the tech sector experiences a downturn. A more balanced sector allocation could mitigate this risk, providing a smoother ride through varying market conditions. Investors may want to explore opportunities in underrepresented sectors to enhance diversification and reduce sector-specific risk.

Regions Info

  • North America
    89%
  • Europe Developed
    5%
  • Asia Emerging
    2%
  • Asia Developed
    2%
  • Japan
    2%
  • Australasia
    1%

Geographically, the portfolio is heavily concentrated in North America, with 88.86% of assets allocated to this region. This reflects a strong home bias, which can limit exposure to international growth opportunities. While the inclusion of international stocks adds some diversification, it's relatively minor. To achieve a truly diversified portfolio, increasing exposure to other regions could provide access to emerging markets and different economic cycles. This geographic diversification can help reduce risk and capture global growth trends.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Vanguard S&P 500 ETF
    High correlation

The portfolio shows high correlation between the Invesco NASDAQ 100 ETF and the Vanguard S&P 500 ETF. This indicates that these assets tend to move in the same direction, reducing the diversification benefits. High correlation can lead to increased risk during market downturns, as correlated assets may decline simultaneously. To enhance diversification, it may be beneficial to include assets with lower correlations, thereby spreading risk across different market conditions. This approach can improve the portfolio's resilience and stability.

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 on reducing high correlation between existing assets, which currently limits diversification benefits. By doing so, the portfolio can achieve a more efficient risk-return balance. Moving along the efficient frontier can help investors tailor their portfolio to be riskier or more conservative, depending on their risk tolerance. Consider incorporating assets with lower correlations and different geographic or sector exposures. This approach can enhance diversification, reduce risk, and potentially improve overall returns.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Invesco NASDAQ 100 ETF 0.60%
  • VanEck Semiconductor ETF 0.40%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.28%

The portfolio's dividend yield stands at 1.28%, with contributions from various ETFs. The Vanguard Total International Stock Index Fund ETF offers the highest yield at 3.0%, providing a steady income stream. While dividends can enhance total returns and offer a cushion during market volatility, the overall yield is relatively modest. Investors seeking higher income may consider increasing allocations to dividend-focused assets. Balancing growth with income-generating investments can improve cash flow and provide a more comprehensive return profile.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Invesco NASDAQ 100 ETF 0.15%
  • VanEck Semiconductor ETF 0.35%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.09%

With a Total Expense Ratio (TER) of 0.09%, the portfolio is cost-efficient, minimizing the drag on returns. The Vanguard S&P 500 ETF, with its low expense ratio, significantly contributes to this efficiency. Keeping costs low is crucial for maximizing net returns over the long term. However, it's important to ensure that low costs don't come at the expense of diversification or risk management. Investors should regularly review expense ratios and consider the value offered by each investment to maintain a cost-effective portfolio without compromising on quality.

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