A balanced portfolio with strong tech exposure and low geographic diversification

Report created on Dec 20, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

This portfolio is heavily weighted towards U.S. equities, with 50% in the Vanguard S&P 500 ETF and 20% in the Invesco NASDAQ 100 ETF. The inclusion of Berkshire Hathaway Inc. and other ETFs like Schwab U.S. Dividend Equity and Vanguard Information Technology Index Fund rounds out the portfolio. Compared to common benchmark compositions, this portfolio is more concentrated in large-cap U.S. stocks. Diversification is low, as indicated by a diversification score of 2 out of 5. To enhance diversification, consider including assets from different regions or asset classes like bonds or real estate.

Growth Info

Historically, the portfolio has performed well, with a Compound Annual Growth Rate (CAGR) of 15.82%. This strong performance is notable when compared to typical market benchmarks, which often average around 7-10% annually. However, the maximum drawdown of -24.21% highlights the potential for significant losses during market downturns. Despite the impressive CAGR, it’s crucial to remember that past performance does not guarantee future results. To mitigate risk, consider incorporating more defensive assets or diversifying across sectors and geographies.

Projection Info

The Monte Carlo simulation, which uses historical data to project potential outcomes, indicates a wide range of possible future returns. With a 50th percentile outcome of 715.87% and an annualized return of 17.56%, the portfolio shows strong growth potential. However, the 5th percentile result of 155.48% demonstrates the inherent uncertainty in projections. It's important to remember that simulations are based on past data and cannot predict future market conditions. Regularly reassessing your portfolio's allocation can help manage risk and align with your evolving investment goals.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly invested in stocks, with nearly 100% allocation to this asset class. While this can drive growth during bull markets, it also exposes the portfolio to significant volatility. Compared to a more balanced asset allocation, such as a 60/40 stock-bond split, this portfolio is less diversified. To reduce risk and improve stability, consider adding fixed-income assets like bonds or exploring alternative investments that may offer uncorrelated returns.

Sectors Info

  • Technology
    33%
  • Financials
    22%
  • Consumer Discretionary
    9%
  • Telecommunications
    8%
  • Health Care
    8%
  • Industrials
    6%
  • Consumer Staples
    6%
  • Energy
    3%
  • Utilities
    2%
  • Basic Materials
    1%
  • Real Estate
    1%

Technology represents the largest sector allocation at 32.92%, followed by Financial Services at 22%. This significant tech exposure aligns with recent market trends but may lead to higher volatility, especially during periods of interest rate hikes or regulatory changes. The portfolio's sector composition lacks defensive sectors like Utilities and Consumer Defensive, which could provide stability during market downturns. Balancing sector weights can help mitigate risks and improve resilience against sector-specific downturns.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

The portfolio is heavily concentrated in North America, with 99.12% of assets based in this region. This geographic concentration limits exposure to international markets, which could offer growth opportunities and diversification benefits. Compared to global benchmark allocations, this portfolio has minimal representation in Europe, Asia, and other regions. To enhance geographic diversification, consider incorporating international equities or funds that track global indices.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Vanguard Information Technology Index Fund ETF Shares
    High correlation

The Invesco NASDAQ 100 ETF and Vanguard Information Technology Index Fund ETF Shares are highly correlated, meaning they tend to move together. This correlation can limit the diversification benefits within the portfolio, especially during tech sector downturns. To improve risk management, consider diversifying into less correlated assets, such as those in different sectors or geographic regions. Reducing overlap can enhance the portfolio's resilience during market volatility.

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 current portfolio may not be optimally positioned on the Efficient Frontier, which represents the best possible risk-return ratio. By adjusting allocations and reducing highly correlated assets, the portfolio could achieve better efficiency. This involves reallocating within the existing assets to maximize returns for a given level of risk. While optimization can enhance performance, it's important to align any changes with your risk tolerance and investment goals.

Dividends Info

  • Invesco NASDAQ 100 ETF 0.50%
  • Schwab U.S. Dividend Equity ETF 3.70%
  • Vanguard Information Technology Index Fund ETF Shares 0.50%
  • Vanguard S&P 500 ETF 0.90%
  • Weighted yield (per year) 1.02%

The portfolio's dividend yield is 1.02%, primarily driven by the Schwab U.S. Dividend Equity ETF's yield of 3.7%. While dividends can provide a steady income stream, this yield is relatively low compared to income-focused portfolios. For investors seeking higher income, consider increasing allocations to dividend-paying stocks or funds. However, it's essential to balance yield with growth potential, as high-yield investments may come with increased risk.

Ongoing product costs Info

  • Invesco NASDAQ 100 ETF 0.15%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.06%

The portfolio's Total Expense Ratio (TER) is impressively low at 0.06%, reflecting cost-efficient management. Low costs can significantly enhance long-term returns by reducing the drag on investment performance. This cost efficiency aligns with best practices and supports the portfolio's overall growth potential. Maintaining a focus on low-cost investments, such as index funds or ETFs, can continue to benefit the portfolio over time.

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