Balanced Portfolio with High Concentration in Technology and U.S. Exposure Needs Diversification and Risk Management Adjustments

Report created on Dec 2, 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 a significant 79.43% allocation in the Vanguard S&P 500 ETF. The rest is spread across a few individual stocks and ETFs, primarily in the tech sector. While this composition may offer strong growth potential, it lacks diversification. A more balanced approach could mitigate potential risks associated with market volatility. Consider diversifying into other asset classes like bonds or alternative investments to reduce reliance on the U.S. stock market. This could help in achieving a more stable and diversified portfolio.

Growth Info

Historically, the portfolio has shown impressive performance with a CAGR of 16.54%, indicating strong growth. However, the max drawdown of -26.29% suggests significant potential losses during market downturns. This performance highlights the portfolio's sensitivity to market fluctuations, likely due to its high concentration in equities. To maintain growth while reducing risk, consider a more diversified allocation. Balancing growth and stability could provide a cushion during market downturns, ensuring more consistent returns over time. This strategy could help in achieving long-term financial goals without excessive risk exposure.

Projection Info

A Monte Carlo simulation was conducted, using a hypothetical initial investment to project future performance. The simulation's results show a wide range of potential outcomes, with a 5th percentile return of 213% and a 67th percentile return of nearly 2,979%. This indicates a high degree of uncertainty and potential volatility. While the median return is promising, the variability suggests a need for diversification to manage risk. Consider a more balanced asset allocation to potentially reduce volatility and increase the likelihood of achieving consistent returns across different market conditions.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly concentrated in stocks, accounting for over 99% of the total allocation. This heavy reliance on equities can lead to significant volatility, especially during market downturns. While stocks can offer substantial growth, they also come with higher risk. To achieve a more balanced risk profile, consider incorporating other asset classes such as bonds or real estate. These can provide stability and reduce the overall risk, offering a more diversified and resilient portfolio that can weather various market conditions while still aiming for growth.

Sectors Info

  • Technology
    40%
  • Financials
    11%
  • Health Care
    10%
  • Consumer Discretionary
    10%
  • Telecommunications
    9%
  • Industrials
    7%
  • Consumer Staples
    5%
  • Energy
    3%
  • Utilities
    2%
  • Real Estate
    2%
  • Basic Materials
    2%

The sector allocation is heavily skewed towards technology at 39.64%, followed by financial services and healthcare. This concentration in a few sectors, especially tech, can expose the portfolio to sector-specific risks. While tech has been a strong performer, it's essential to diversify across various sectors to mitigate potential downturns in specific industries. Consider spreading investments across more sectors to achieve better diversification. This strategy can help in balancing growth potential with risk, ensuring the portfolio is not overly dependent on the performance of a single sector.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is predominantly focused on North America, with 98.62% exposure. This lack of international diversification can lead to vulnerability to regional economic downturns. While the U.S. market has been robust, global diversification can provide exposure to growth opportunities in other regions. Consider increasing the allocation to international markets to achieve a more globally diversified portfolio. This approach can help in mitigating regional risks and capturing growth potential from emerging and developed markets outside North America, contributing to a more balanced and resilient investment strategy.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Schwab U.S. Large-Cap Growth ETF
    High correlation
  • Vanguard S&P 500 ETF
    Vanguard Total World Stock Index Fund ETF Shares
    High correlation

The portfolio has several highly correlated assets, such as the Invesco NASDAQ 100 ETF and Schwab U.S. Large-Cap Growth ETF, as well as the Vanguard S&P 500 ETF and Vanguard Total World Stock Index Fund ETF Shares. These correlations suggest limited diversification benefits, as these assets tend to move in tandem. Reducing overlap by selecting less correlated assets can enhance diversification, potentially lowering risk and improving returns. Consider rebalancing the portfolio to include assets with lower correlations, which can provide a more diversified and stable investment experience.

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, it's crucial to address the high correlation among the portfolio's assets. Reducing overlap can enhance diversification and improve risk management. Once this is resolved, consider moving along the efficient frontier to adjust the risk-return profile. To achieve a riskier portfolio, increase exposure to growth-oriented assets. For a more conservative approach, incorporate more stable, income-generating investments like bonds. This strategic adjustment can help align the portfolio with the investor's risk tolerance and financial goals, ensuring a more tailored and effective investment strategy.

Dividends Info

  • Apple Inc 0.40%
  • Microsoft Corporation 0.50%
  • Invesco NASDAQ 100 ETF 0.60%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total World Stock Index Fund ETF Shares 1.80%
  • Weighted yield (per year) 1.08%

The portfolio's dividend yield stands at 1.08%, with contributions from holdings like the Vanguard S&P 500 ETF and Vanguard Total World Stock Index Fund ETF Shares. While dividends provide a steady income stream, the current yield is relatively modest. To enhance income potential, consider increasing exposure to higher-yielding investments. This could involve exploring dividend-focused funds or stocks with a strong track record of dividend growth. Balancing growth-oriented and income-generating investments can help in achieving a more comprehensive investment strategy, catering to both capital appreciation and income needs.

Ongoing product costs Info

  • Invesco NASDAQ 100 ETF 0.15%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total World Stock Index Fund ETF Shares 0.07%
  • Weighted costs total (per year) 0.03%

The portfolio's total expense ratio is low, at just 0.03%, thanks to the inclusion of cost-effective ETFs like the Vanguard S&P 500 ETF. Keeping costs low is crucial for maximizing returns over time, as high fees can erode gains. This cost-efficient approach is a positive aspect of the portfolio. To maintain this advantage, continue prioritizing low-cost investment options. Regularly review the portfolio's expense ratios to ensure they remain competitive. This focus on cost efficiency can contribute to better long-term performance, allowing more of the portfolio's returns to benefit the investor.

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