Balanced Portfolio with Broad Diversification and Strong Historical Performance but High Correlation in Assets

Report created on Jul 30, 2024

Risk profile Info

4/7
Balanced
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Diversification profile Info

4/5
Broadly Diversified
← Less diversification More diversification →

Positions

The portfolio is made up of six ETFs, with a strong focus on the U.S. market. The Vanguard S&P 500 ETF holds the largest portion at 45%, followed by the Vanguard Total International Stock Index Fund ETF at 25%. This composition suggests a preference for large-cap U.S. stocks with a significant international exposure. The portfolio also includes a mix of sector-specific and dividend-focused ETFs, adding diversity and potential stability. The current allocation indicates a balanced approach, aiming for growth while managing risk through diversification across different sectors and regions.

Growth Info

Historically, the portfolio has performed exceptionally well with a compound annual growth rate (CAGR) of 14.69%. This is a strong indicator of its potential for wealth accumulation over time. However, it has also experienced a maximum drawdown of -25.74%, highlighting the risk of significant value declines during market downturns. The concentration of returns within just 20 days suggests that timing plays a crucial role in its performance. This historical insight underscores the importance of maintaining a long-term investment horizon to ride out short-term volatility and capitalize on potential gains.

Projection Info

A Monte Carlo simulation, which uses random sampling to predict future outcomes, was conducted with 1,000 simulations. The results show a wide range of potential future values, with the 5th percentile at 116.74% and the 50th percentile at 819.97%. Impressively, 999 out of 1,000 simulations resulted in positive returns, with an annualized return of 19.49%. This indicates a high probability of achieving positive outcomes, albeit with some variability. The projections suggest that maintaining the current investment strategy could yield favorable results, but it's essential to remain aware of the inherent uncertainties in future market conditions.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted in stocks, comprising 99.56% of the allocation, with negligible amounts in cash and other asset classes. This high equity exposure aligns with a growth-oriented strategy, aiming to maximize returns through capital appreciation. While this can lead to substantial gains during bull markets, it also exposes the portfolio to higher volatility and potential losses during downturns. To balance risk and reward, consider incorporating more diverse asset classes over time, like bonds or alternative investments, to provide stability and reduce overall portfolio volatility.

Sectors Info

  • Technology
    30%
  • Financials
    14%
  • Consumer Discretionary
    11%
  • Industrials
    10%
  • Health Care
    9%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Energy
    5%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    2%

The portfolio covers a broad range of sectors, with technology leading at 29.60%, followed by financial services and consumer cyclicals. This sector allocation reflects a growth-focused strategy, capitalizing on high-performing industries. However, the heavy tilt towards technology could increase vulnerability to sector-specific risks. While the portfolio is diversified across multiple sectors, maintaining a balanced approach is crucial to mitigate potential downturns in any single industry. Regularly reviewing and adjusting sector exposure can help ensure alignment with broader market trends and personal investment goals.

Regions Info

  • North America
    75%
  • Europe Developed
    10%
  • Asia Emerging
    4%
  • Japan
    4%
  • Asia Developed
    3%
  • Australasia
    1%
  • Africa/Middle East
    1%
  • Latin America
    1%

Geographically, the portfolio is predominantly invested in North America, accounting for 75.28% of the allocation. This strong domestic focus is complemented by exposure to Europe, Asia, and other regions. While the international component adds diversification, the concentration in North American assets may limit potential benefits from global growth opportunities. To enhance geographic diversification, consider gradually increasing exposure to emerging markets and other developed regions. This approach can help capture growth in different economic cycles and reduce the impact of regional downturns on the overall portfolio performance.

Redundant positions Info

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

The portfolio exhibits high correlation between certain assets, particularly the Invesco NASDAQ 100 ETF and the Vanguard S&P 500 ETF. This correlation suggests that these assets tend to move in the same direction, which could amplify portfolio volatility during market swings. While diversification across different sectors and regions is present, addressing asset correlation is essential to optimize risk management. To reduce potential risk, consider diversifying into assets with lower correlation, which can provide a buffer during market downturns and enhance overall portfolio 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.

The portfolio optimization analysis suggests refraining from immediate optimization due to the presence of highly correlated assets. Instead, focus on enhancing diversification by exploring assets with lower correlation to existing holdings. To shift towards a riskier or more conservative portfolio, consider adjusting the allocation along the efficient frontier. This involves balancing the trade-off between risk and return by reallocating assets to achieve the desired investment profile. Prioritize addressing asset correlations and ensuring alignment with personal risk tolerance and financial goals before making significant changes.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Invesco NASDAQ 100 ETF 0.60%
  • Schwab U.S. Dividend Equity ETF 3.40%
  • 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) 1.78%

The portfolio offers a total dividend yield of 1.78%, with the Schwab U.S. Dividend Equity ETF contributing the highest yield at 3.4%. This dividend income provides a steady cash flow, which can be reinvested to compound growth or used for income needs. While the yield is relatively modest, it adds a layer of stability to the portfolio, particularly during periods of market volatility. To enhance income potential, consider exploring additional dividend-focused investments or strategies, while ensuring they align with the overall investment goals and risk tolerance.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Invesco NASDAQ 100 ETF 0.15%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • 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) 0.08%

The portfolio's total expense ratio (TER) is 0.08%, indicating a cost-effective approach to investing. Low costs are crucial for maximizing net returns over time, as they minimize the drag on performance. The Vanguard S&P 500 ETF and Schwab U.S. Dividend Equity ETF have particularly low expense ratios, contributing to the overall cost efficiency. While the portfolio is already well-positioned in terms of costs, it's essential to regularly review and compare expense ratios to ensure continued cost-effectiveness. Keeping investment costs low is a fundamental principle for optimizing portfolio returns.

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