Balanced Portfolio with Strong Historic Performance but Lacks Geographic and Sector Diversification

Report created on Aug 11, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

The portfolio is composed of a mix of ETFs and one common stock, with a strong emphasis on dividend-focused funds. This composition suggests a preference for income generation through dividends while maintaining exposure to growth via the Nasdaq Inc. The portfolio's balanced profile indicates a moderate risk tolerance, aiming for a blend of growth and income. However, the low diversification score highlights a need for broader asset allocation to mitigate risks and enhance stability. A more diversified approach could potentially improve the portfolio's resilience against market fluctuations.

Growth Info

Historically, this portfolio has shown impressive performance with a compound annual growth rate (CAGR) of 18.09%. Such a robust return suggests effective asset selection and market timing. However, the maximum drawdown of -20.77% indicates vulnerability during market downturns. Understanding the days contributing to 90% of returns, which are just 23, emphasizes the importance of staying invested during volatile periods. To maintain this performance, it's crucial to regularly review the portfolio's allocations and ensure alignment with long-term investment goals and risk tolerance.

Projection Info

Using a Monte Carlo simulation, which predicts future outcomes based on random sampling, the portfolio shows promising potential. Assuming a hypothetical initial investment, the 50th percentile projects a 920.37% return, while the 67th percentile suggests a 1,293.5% return. With 997 out of 1,000 simulations showing positive returns, the portfolio's annualized return stands at 19.6%. This indicates a high probability of favorable outcomes, although it's essential to remember that past performance doesn't guarantee future results. Continual assessment and adjustment are necessary for sustained success.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily skewed towards equities, with 99.82% in stocks and a negligible 0.18% in cash. This concentration in a single asset class increases exposure to market volatility but can also enhance growth potential. While the focus on stocks aligns with a growth-oriented strategy, incorporating other asset classes, such as bonds or alternative investments, could help reduce overall risk. A more balanced allocation might provide stability during market downturns and ensure a smoother investment journey.

Sectors Info

  • Financials
    43%
  • Technology
    13%
  • Consumer Discretionary
    9%
  • Industrials
    9%
  • Health Care
    6%
  • Consumer Staples
    6%
  • Energy
    5%
  • Telecommunications
    4%
  • Basic Materials
    2%
  • Real Estate
    2%
  • Utilities
    2%

The sector allocation is dominated by financial services, accounting for 42.90% of the portfolio, followed by technology and consumer cyclicals. This concentration in financials may lead to increased vulnerability to sector-specific risks, such as regulatory changes or economic downturns. A more evenly distributed sector allocation could mitigate these risks and enhance the portfolio's resilience. Diversifying into underrepresented sectors like real estate or utilities might provide additional stability and growth opportunities.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly concentrated in North America, with 98.71% of assets allocated to this region. This lack of geographic diversification exposes the portfolio to regional economic and political risks. Expanding the portfolio's geographic reach to include more exposure to Europe, Asia, or emerging markets could provide a hedge against regional downturns and tap into global growth opportunities. A more globally diversified approach would enhance the portfolio's resilience and potential for long-term growth.

Redundant positions Info

  • Schwab U.S. Dividend Equity ETF
    Financial Select Sector SPDR® Fund
    Vanguard High Dividend Yield Index Fund ETF Shares
    High correlation

The portfolio contains highly correlated assets, particularly among dividend-focused ETFs like Schwab U.S. Dividend Equity ETF and Vanguard High Dividend Yield Index Fund ETF Shares. High correlations mean these assets tend to move in the same direction, reducing diversification benefits. To optimize the portfolio, consider introducing assets with lower correlations to existing holdings. This could improve the risk-return profile by minimizing the impact of adverse market movements on the entire 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.

Portfolio optimization involves aligning investments with the efficient frontier, a concept that represents the best possible return for a given level of risk. Currently, the portfolio's high correlation among assets suggests it may not be on the efficient frontier. To optimize, consider reducing overlap and increasing diversification across sectors and geographies. This could enhance the risk-return profile and potentially move the portfolio closer to the efficient frontier. Regular reviews and adjustments are key to maintaining an optimal portfolio.

Dividends Info

  • Nasdaq Inc 1.10%
  • Invesco NASDAQ 100 ETF 0.60%
  • Schwab U.S. Dividend Equity ETF 3.40%
  • Vanguard Small-Cap Value Index Fund ETF Shares 1.90%
  • Vanguard High Dividend Yield Index Fund ETF Shares 2.70%
  • Financial Select Sector SPDR® Fund 1.30%
  • Invesco S&P SmallCap Value with Momentum ETF 1.60%
  • Weighted yield (per year) 1.82%

The portfolio offers a respectable dividend yield of 1.82%, with contributions from various ETFs and Nasdaq Inc. This income stream can provide a cushion during market downturns and enhance total returns. However, the reliance on dividend-focused funds may limit growth potential. Balancing dividend income with growth-oriented investments could optimize returns over time. Regularly reviewing the dividend yield and its impact on overall performance will ensure alignment with income goals and risk tolerance.

Ongoing product costs Info

  • Invesco NASDAQ 100 ETF 0.15%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard Small-Cap Value Index Fund ETF Shares 0.07%
  • Vanguard High Dividend Yield Index Fund ETF Shares 0.06%
  • Financial Select Sector SPDR® Fund 0.09%
  • Invesco S&P SmallCap Value with Momentum ETF 0.36%
  • Weighted costs total (per year) 0.11%

The portfolio's total expense ratio (TER) is relatively low at 0.11%, indicating cost-efficient management. This is beneficial as lower costs contribute to higher net returns over time. However, the Invesco S&P SmallCap Value with Momentum ETF has a higher expense ratio of 0.36%, which could erode returns. It's important to regularly evaluate the cost-effectiveness of each holding and consider lower-cost alternatives if available. Keeping investment costs low is crucial for maximizing long-term returns and achieving financial goals.

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