A balanced portfolio with high US exposure and concentration in large-cap stocks

Report created on Dec 16, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio is heavily weighted towards US large-cap stocks, with the Schwab S&P 500 Index Fund making up 58.7% and the Vanguard Total Stock Market Index Fund ETF at 25.5%. This composition suggests a focus on stable, well-established companies. While this can provide steady growth, it may also limit exposure to other potentially high-growth areas. It's important to consider diversifying into different asset classes or regions to balance risk and return. A more diversified portfolio can help mitigate the impact of market downturns and provide opportunities for growth in various market conditions.

Growth Info

Historically, the portfolio has delivered a compound annual growth rate (CAGR) of 14.22%, which is quite strong. However, it also experienced a maximum drawdown of -33.64%, indicating significant volatility during market downturns. While past performance can provide insights, it's not a guarantee of future results. Investors should be aware of the potential for large fluctuations in value and consider their risk tolerance. To manage this risk, maintaining a diversified portfolio and regularly reviewing asset allocations can help ensure alignment with investment goals and risk appetite.

Projection Info

Monte Carlo simulations provide a range of potential future outcomes based on historical data, with this portfolio showing an annualized return of 12.73% across 1,000 simulations. The 5th percentile projects a modest 33.42% return, while the 67th percentile suggests a more optimistic 510.02% return. These simulations highlight the uncertainty and variability of future returns. While they offer a useful framework for understanding potential risks and rewards, they rely on historical data, which may not fully capture future market conditions. Regularly updating projections and adjusting strategies can help manage expectations and enhance decision-making.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, accounting for 99.67% of the total allocation. This heavy concentration in equities suggests a focus on capital growth, but it also increases exposure to market volatility. While stocks can offer high returns over the long term, diversifying across different asset classes, such as bonds or real estate, can help reduce risk. A more balanced allocation can provide stability during market downturns and enhance overall portfolio resilience. Consider exploring alternative investments to achieve a more diversified and risk-adjusted portfolio.

Sectors Info

  • Technology
    36%
  • Financials
    13%
  • Health Care
    10%
  • Industrials
    8%
  • Telecommunications
    8%
  • Consumer Discretionary
    6%
  • Consumer Staples
    5%
  • Consumer Discretionary
    3%
  • Energy
    3%
  • Utilities
    2%
  • Real Estate
    2%
  • Basic Materials
    2%

The portfolio is notably concentrated in the technology sector, which comprises 36.05% of the total allocation. While technology has been a strong performer, this concentration can increase vulnerability to sector-specific risks. Other sectors, such as financial services and healthcare, have moderate representation, but further diversification across sectors could reduce reliance on any single area. Balancing sector exposure can help smooth returns and mitigate the impact of sector-specific downturns. Consider rebalancing the portfolio to achieve a more even distribution across sectors, aligning with broader market opportunities.

Regions Info

  • North America
    94%
  • Asia Emerging
    2%
  • Europe Developed
    2%
  • Asia Developed
    1%
  • Japan
    1%
  • Africa/Middle East
    1%

The portfolio has a significant geographic concentration in North America, accounting for 93.59% of the allocation. This focus on the US market may limit exposure to international growth opportunities and increase vulnerability to domestic economic fluctuations. Diversifying geographically can provide access to emerging markets and developed economies outside North America, enhancing growth potential and reducing regional risks. Consider increasing allocations to international equities to capture global market trends and opportunities, while balancing the overall risk profile.

Redundant positions Info

  • Schwab S&P 500 Index Fund
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio contains highly correlated assets, particularly between the Schwab S&P 500 Index Fund and the Vanguard Total Stock Market Index Fund ETF. This correlation indicates that these assets tend to move in tandem, offering limited diversification benefits. While such correlation can stabilize returns during market upswings, it also increases vulnerability during downturns. Reducing overlap and introducing assets with lower correlation can enhance diversification and risk management. Consider reallocating funds to less correlated investments to achieve a more balanced and 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.

The portfolio could benefit from optimization using the Efficient Frontier, which aims to achieve the best possible risk-return ratio based on current assets. However, before optimizing, it's essential to address the high correlation between certain assets, as they may not contribute to diversification. By reallocating funds to less correlated investments, the portfolio can move closer to the Efficient Frontier, enhancing potential returns for a given level of risk. Regularly reviewing and adjusting allocations can ensure alignment with investment goals and improve overall portfolio efficiency.

Dividends Info

  • First Trust NASDAQ Cybersecurity ETF 0.40%
  • Schwab U.S. Dividend Equity ETF 3.50%
  • Schwab Emerging Markets Equity ETF 0.10%
  • Schwab International Equity ETF 0.90%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Weighted yield (per year) 0.45%

The portfolio's dividend yield is relatively low at 0.45%, with contributions primarily from the Schwab U.S. Dividend Equity ETF at 3.5%. While dividends can provide a steady income stream, this portfolio's emphasis on growth-oriented funds results in a lower yield. Investors seeking income may want to increase exposure to dividend-focused assets or consider strategies that balance growth and income. Reassessing the portfolio's income-generating potential can help align it with income objectives, ensuring a more comprehensive approach to return generation.

Ongoing product costs Info

  • First Trust NASDAQ Cybersecurity ETF 0.59%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab Emerging Markets Equity ETF 0.11%
  • Schwab International Equity ETF 0.06%
  • Schwab S&P 500 Index Fund 0.02%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.07%

The portfolio's total expense ratio is 0.07%, reflecting a cost-effective structure. Low costs are crucial for maximizing net returns over time, as they reduce the drag on performance. While the First Trust NASDAQ Cybersecurity ETF has a higher expense ratio of 0.59%, the overall cost remains competitive. Investors should continue to monitor costs and seek opportunities to minimize fees, as even small reductions can significantly impact long-term returns. Regularly reviewing expense ratios and exploring lower-cost alternatives can enhance portfolio efficiency.

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