Balanced Portfolio with Low Diversity and High US Stock Concentration
Risk profile
- Secure Speculative
The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.
Diversification profile
- Focused Diversified
The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.
What type of investor this portfolio is suitable for
Balanced Investors
This portfolio is suitable for investors who are comfortable with a balanced risk profile and have a medium to long-term investment horizon. It is ideal for those seeking growth through equity investments, particularly in the US market. The investor should be willing to accept market volatility and potential drawdowns in exchange for the possibility of higher returns. A focus on low-cost investments and modest dividends may appeal to those prioritizing capital appreciation over immediate income.
Positions
-
Vanguard S&P 500 ETF
VOO - US9229083632 94.87% -
Invesco NASDAQ 100 ETF
QQQM - US46138G6492 5.13%
The portfolio is primarily composed of two ETFs: Vanguard S&P 500 ETF making up 94.87% and Invesco NASDAQ 100 ETF at 5.13%. This results in a low diversification score, as the portfolio heavily leans on US stocks. While the S&P 500 offers exposure to a broad range of sectors, the NASDAQ 100 is tech-heavy. A portfolio so concentrated in a few positions can be riskier, as it lacks the buffer that diversification provides. To improve, consider adding assets from different sectors or regions to reduce dependency on US equities.
Growth
Historically, the portfolio has performed well, with a CAGR of 15.07%. However, it also experienced a significant max drawdown of -24.98%, indicating vulnerability during market downturns. The portfolio's returns are concentrated over a few days, suggesting a reliance on market timing. While past performance is not indicative of future results, it highlights the portfolio's potential for both significant gains and losses. To mitigate risk, consider strategies that could provide more stable returns, such as diversifying into bonds or other asset classes.
Projection
Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was assessed. The simulation projects a 5th percentile return of 117.7% and a 50th percentile return of 621.33%, with a high chance of positive returns. This indicates robust potential growth, but the reliance on a few assets could amplify volatility. Monte Carlo simulations help in understanding potential future outcomes, but they are not foolproof. To enhance stability, consider balancing the portfolio with more conservative investments that can perform well under different market conditions.
Asset classes
- Stocks 100%
- Cash 0%
The portfolio is almost entirely invested in stocks, with a negligible cash position. This lack of asset class diversification can increase risk, as stocks are subject to market volatility. A more balanced portfolio might include bonds or other fixed-income securities to provide stability and income, especially during market downturns. While stocks offer growth potential, incorporating other asset classes can help smooth out returns and reduce overall risk, aligning better with a balanced risk profile.
Sectors
- Technology 34%
- Financials 12%
- Health Care 11%
- Consumer Discretionary 10%
- Telecommunications 9%
- Industrials 7%
- Consumer Staples 6%
- Energy 3%
- Utilities 3%
- Real Estate 2%
- Basic Materials 2%
Sector allocation is heavily skewed towards technology, with 33.95% of the portfolio, followed by financial services and healthcare. This concentration in a few sectors can expose the portfolio to sector-specific risks, such as regulatory changes or technological disruptions. A more diversified sector allocation could mitigate these risks by spreading investments across sectors with different economic cycles. Consider evaluating sector performance trends and adjusting allocations to achieve a more balanced sector exposure.
Regions
- North America 99%
- Europe Developed 1%
- Asia Developed 0%
- Latin America 0%
- Asia Emerging 0%
Geographically, the portfolio is overwhelmingly concentrated in North America, with 99.31% of assets. This heavy US focus may miss opportunities in other regions and increases exposure to US-specific risks. A more geographically diverse portfolio can capture growth from emerging markets and provide a hedge against US economic downturns. Expanding into international equities or funds can offer exposure to different economic cycles and potentially higher growth rates in developing regions.
Redundant positions
-
Vanguard S&P 500 ETF
Invesco NASDAQ 100 ETF
High correlation
The portfolio's assets, Vanguard S&P 500 ETF and Invesco NASDAQ 100 ETF, are highly correlated. This means they tend to move in the same direction, which can amplify portfolio volatility. High correlation reduces the benefits of diversification, as the portfolio's performance is tied to the same market trends. To reduce correlation, consider incorporating assets with low or negative correlation to stocks, such as bonds or commodities, which can provide diversification benefits and stabilize returns.
Dividends
- Invesco NASDAQ 100 ETF 0.60%
- Vanguard S&P 500 ETF 1.20%
- Weighted yield (per year) 1.17%
The portfolio's dividend yield stands at 1.17%, with the Vanguard S&P 500 ETF contributing 1.2% and the Invesco NASDAQ 100 ETF at 0.6%. While dividends provide a steady income stream, the yield is relatively modest. For investors seeking higher income, exploring dividend-focused investments might be worthwhile. However, it's important to balance the pursuit of yield with the overall growth potential and risk profile of the portfolio. Reinvesting dividends can also enhance long-term growth through compounding.
Ongoing product costs
- Invesco NASDAQ 100 ETF 0.15%
- Vanguard S&P 500 ETF 0.03%
- Weighted costs total (per year) 0.04%
The portfolio benefits from low costs, with a total expense ratio (TER) of 0.04%. The Vanguard S&P 500 ETF has an expense ratio of 0.03%, and the Invesco NASDAQ 100 ETF is at 0.15%. Low costs are crucial for maximizing net returns over time, as high fees can erode gains. Maintaining low-cost investments is a sound strategy, but it's also important to ensure that cost savings do not come at the expense of diversification or risk management. Regularly review costs to ensure they remain competitive.
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