Portfolio with Balanced Risk and High US Exposure Needs Diversification Boost for Optimal Performance

Report created on Nov 26, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

1/5
Single-Focused
Less diversification More diversification

Positions

The portfolio consists of six ETFs, predominantly focused on US equities, with a strong emphasis on the S&P 500 and total US stock market. The Vanguard S&P 500 ETF holds the largest share, followed by the Vanguard Total Stock Market Index Fund ETF. This composition highlights a single-focused diversification approach, heavily reliant on the US market. While this provides exposure to large-cap US companies, it lacks diversity across asset classes and geographies, which could stabilize returns. To enhance diversification, consider integrating different asset classes or geographic regions, which can help mitigate risks associated with market fluctuations.

Growth Info

Historically, the portfolio has demonstrated impressive growth, with a compound annual growth rate (CAGR) of 15.49%. This suggests strong past performance, likely driven by the robust returns of US equities over recent years. However, the portfolio also experienced a maximum drawdown of -16.29%, indicating vulnerability during market downturns. It's crucial to recognize that past performance doesn't guarantee future results. To maintain and potentially improve performance, consider strategies that balance growth with risk mitigation, such as incorporating more diverse asset classes or sectors to reduce the impact of future drawdowns.

Projection Info

Using a Monte Carlo simulation, which models potential future returns by simulating thousands of scenarios, the portfolio's projected outcomes are promising. With an annualized return of 16.44% across simulations, the portfolio shows potential for significant growth. However, the wide range of outcomes, from a 5th percentile return of 188.45% to a 67th percentile of 889.81%, highlights the uncertainty inherent in investing. To improve the likelihood of achieving favorable outcomes, focus on diversification and risk management strategies. This approach can help navigate the uncertainties of future market conditions.

Asset classes Info

  • Stocks
    97%
  • No data
    3%

The portfolio is heavily concentrated in stocks, accounting for over 97% of the total allocation. This strong equity focus can drive growth but also increases exposure to market volatility. A small portion is allocated to cash, providing some liquidity but minimal impact on overall risk. To create a more balanced portfolio, consider incorporating additional asset classes such as bonds or real estate, which can provide stability and income during market downturns. Diversifying asset classes can help manage risk and potentially enhance long-term returns by smoothing out the portfolio's performance.

Sectors Info

  • Technology
    34%
  • Financials
    11%
  • Consumer Discretionary
    11%
  • Health Care
    11%
  • Telecommunications
    9%
  • Industrials
    8%
  • Consumer Staples
    6%
  • Energy
    3%
  • Utilities
    3%
  • Real Estate
    2%
  • Basic Materials
    2%

Sector allocation within the portfolio is dominated by technology, making up nearly 34% of the holdings. While technology has been a high-performing sector, this concentration increases vulnerability to sector-specific risks. Other sectors like financial services and consumer cyclicals also have significant representation. To reduce sector risk, consider diversifying into underrepresented sectors such as basic materials or utilities. This can help cushion the portfolio against downturns in any single sector and provide more stable returns across different market conditions.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly concentrated in North America, with over 99% of assets allocated there. This focus on the US market offers exposure to a stable, developed economy but limits potential gains from emerging markets or other developed regions. To mitigate geographic risk and capitalize on global growth opportunities, consider reallocating some assets to international markets. This can provide exposure to different economic cycles and growth drivers, enhancing the portfolio's diversification and potential for long-term success.

Redundant positions Info

  • Vanguard S&P 500 ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    JPMorgan Nasdaq Equity Premium Income ETF
    Vanguard S&P 500 Growth Index Fund ETF Shares
    SPDR S&P 500 ETF Trust
    High correlation

The portfolio contains several highly correlated assets, particularly among the S&P 500-focused ETFs. This correlation suggests that these assets tend to move in the same direction, providing limited diversification benefits. While this can amplify returns during market upswings, it also increases risk during downturns. To reduce correlation and enhance diversification, consider introducing assets with low or negative correlation to the existing holdings. This can help stabilize returns by offsetting losses in one area with gains in another, creating a more resilient 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.

Before optimizing the portfolio, focus on reducing overlapping assets that offer no diversification benefits. By eliminating highly correlated holdings, you can improve the portfolio's efficiency. To achieve a riskier portfolio, consider increasing equity exposure or concentrating on growth-oriented sectors. Conversely, for a more conservative approach, incorporate bonds or other less volatile asset classes. Moving along the efficient frontier involves balancing risk and return, ensuring alignment with your financial goals and risk tolerance. Prioritize diversification strategies to enhance the portfolio's resilience and potential returns.

Dividends Info

  • JPMorgan Equity Premium Income ETF 7.00%
  • JPMorgan Nasdaq Equity Premium Income ETF 9.30%
  • SPDR S&P 500 ETF Trust 1.20%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard S&P 500 Growth Index Fund ETF Shares 0.60%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 2.39%

The portfolio's dividend yield stands at 2.39%, primarily driven by the high yields of the JPMorgan Equity Premium Income ETFs. While this provides a steady income stream, the overall yield is moderate, reflecting the growth-oriented nature of the holdings. To increase income potential, consider adding higher-yielding assets or funds with a focus on dividends. This can enhance cash flow and provide a buffer during periods of market volatility, contributing to a more balanced and income-generating portfolio.

Ongoing product costs Info

  • JPMorgan Equity Premium Income ETF 0.35%
  • JPMorgan Nasdaq Equity Premium Income ETF 0.35%
  • SPDR S&P 500 ETF Trust 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard S&P 500 Growth Index Fund ETF Shares 0.10%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.10%

The portfolio's total expense ratio (TER) is relatively low at 0.1%, with the Vanguard ETFs contributing significantly to this cost efficiency. Lower costs are advantageous as they enhance net returns over time. However, the JPMorgan ETFs have higher expense ratios, which could impact overall performance. To maintain low costs, periodically review the expense ratios of the holdings and consider cost-effective alternatives if necessary. Keeping investment costs low is crucial for maximizing long-term returns, especially in a portfolio with a strong growth focus.

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