Balanced Portfolio With Strong U.S. Focus and Moderate Diversification Suited for Growth-Oriented Investors

Report created on Jul 13, 2024

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.

Positions

The portfolio is composed of five ETFs, with a significant focus on U.S. equities. The largest allocations are in Schwab U.S. Dividend Equity ETF and Vanguard S&P 500 ETF, each making up 30% of the portfolio. The Invesco NASDAQ 100 ETF also holds a substantial 20% weight, emphasizing a tech-heavy exposure. The smaller allocations in Avantis U.S. Small Cap Value ETF and Schwab International Equity ETF provide some diversification. This composition reflects a balanced yet U.S.-centric investment approach, offering exposure to large-cap, small-cap, and international equities, which can help in achieving moderate growth.

Growth Info

Historically, the portfolio has shown a commendable performance with a compound annual growth rate (CAGR) of 15.78%. Despite a maximum drawdown of -23.1%, which indicates some volatility, the overall returns have been strong. The fact that only 22 days account for 90% of the returns suggests that the portfolio has experienced significant gains in short bursts. This performance profile is indicative of a portfolio with a growth-oriented strategy, potentially rewarding during bullish market conditions but requiring a tolerance for market swings.

Projection Info

Using a Monte-Carlo simulation, which models potential future returns by running numerous random scenarios, the portfolio shows promising forward projections. Assuming a hypothetical initial investment, the median (50th percentile) scenario projects a return of 709.78%, while the 5th percentile offers a more conservative estimate of 137.74%. With 999 out of 1,000 simulations yielding positive returns, the portfolio appears robust against various market conditions. However, these projections are based on historical data and assumptions, so actual future performance may vary.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted in stocks, with 99.86% allocated to equities, reflecting a strong growth focus. Minor allocations to cash, bonds, and other asset classes are negligible, indicating a lack of diversification in terms of asset classes. This concentration in equities suggests a higher risk profile, as stocks can be volatile. To potentially reduce risk, it could be beneficial to consider diversifying into other asset classes like bonds or alternative investments, which can provide stability and income, especially during market downturns.

Sectors Info

  • Technology
    25%
  • Financials
    15%
  • Consumer Discretionary
    12%
  • Health Care
    10%
  • Industrials
    10%
  • Consumer Staples
    8%
  • Telecommunications
    8%
  • Energy
    7%
  • Basic Materials
    3%
  • Utilities
    1%
  • Real Estate
    1%

The sector allocation reveals a significant tilt towards technology, which comprises 25% of the portfolio, followed by financial services and consumer cyclicals. This sector distribution aligns with a growth-oriented strategy, as tech and financials often drive market performance. However, this concentration may increase volatility, as these sectors can be cyclical. To enhance stability, consider balancing the sector exposure by including more defensive sectors like utilities or healthcare, which tend to be less sensitive to economic cycles and can provide a buffer during downturns.

Regions Info

  • North America
    90%
  • Europe Developed
    6%
  • Japan
    2%
  • Australasia
    1%
  • Asia Developed
    1%

Geographically, the portfolio is predominantly invested in North America, with nearly 90% exposure, primarily in the U.S. This strong domestic focus may limit the benefits of international diversification, which can help mitigate regional economic risks. The remaining allocations are spread thinly across Europe, Japan, and other regions, offering limited global exposure. To enhance diversification and potentially capture growth opportunities in emerging markets, consider increasing the geographic spread, which can help balance the portfolio against regional market fluctuations.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Vanguard S&P 500 ETF
    High correlation

The portfolio includes highly correlated assets, particularly between Invesco NASDAQ 100 ETF and Vanguard S&P 500 ETF. High correlation means these assets tend to move in the same direction, which can reduce the diversification benefits. While this can amplify gains in a rising market, it also increases risk during downturns. To optimize the portfolio, consider reducing the overlap by introducing less correlated assets, which can help smooth out volatility and provide a more balanced risk-return profile.

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 the portfolio for risk or returns, focus on reducing asset overlap, particularly among highly correlated ETFs. This can enhance diversification benefits, which are currently limited. Moving along the efficient frontier allows for adjustments between risk and return. For a riskier portfolio, increase exposure to high-growth assets. Conversely, for a more conservative approach, consider adding bonds or dividend-paying stocks. These adjustments should align with the investor's risk tolerance and financial goals to ensure a balanced and optimized portfolio.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Invesco NASDAQ 100 ETF 0.60%
  • Schwab U.S. Dividend Equity ETF 3.40%
  • Schwab International Equity ETF 2.80%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.93%

The portfolio offers a moderate dividend yield of 1.93%, with the Schwab U.S. Dividend Equity ETF contributing the highest yield at 3.4%. Dividends can provide a steady income stream and help cushion against market volatility. However, the overall yield is somewhat modest, reflecting a focus on growth over income. For investors seeking higher income, consider increasing exposure to dividend-focused investments or high-yield sectors. This can enhance the portfolio's income-generating potential while maintaining a growth orientation.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Invesco NASDAQ 100 ETF 0.15%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab International Equity ETF 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.09%

The total expense ratio (TER) of the portfolio is 0.09%, which is relatively low and indicates cost-efficient management. The Vanguard S&P 500 ETF, with the lowest cost of 0.03%, contributes to this efficiency. Keeping investment costs low is crucial for maximizing net returns over time. While the current TER is favorable, it's important to continually monitor and compare costs against potential returns. Maintaining a focus on low-cost investments can help enhance overall portfolio performance and ensure that more of the investment gains are retained.

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