A balanced portfolio with strong dividend focus but limited geographic diversification

Report created on Jan 10, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

1/5
Single-Focused
Less diversification More diversification

Positions

The portfolio is composed of seven ETFs, with a focus on large-cap U.S. equities and dividend-paying stocks. Each ETF makes up 10-20% of the portfolio. This structure leans heavily towards equities, with a small allocation in cash-like assets through the T-Bill ETF. Compared to typical balanced portfolios, this one has a higher concentration in equity and dividend-focused ETFs, which may influence the risk-return profile. To enhance diversification, consider adding exposure to other asset classes like bonds or international equities, which could help balance the equity-heavy allocation.

Growth Info

Historically, the portfolio has shown a robust CAGR of 11.31%, indicating strong growth over time. However, it also experienced a significant maximum drawdown of -32.52%, showing vulnerability during market downturns. This performance is comparable to broad market indices, reflecting the portfolio's heavy equity weighting. While past performance can offer insights, it's crucial to remember that it doesn't guarantee future results. To mitigate potential future drawdowns, consider adjusting the allocation towards more stable assets or incorporating defensive strategies.

Projection Info

Using Monte Carlo simulations, the portfolio's potential future outcomes were projected, with the 50th percentile showing a 307.29% return. This method uses historical data to simulate a range of possible future performance scenarios. However, it's important to note that these projections are not predictions, and actual outcomes may vary. The strong median projection aligns with historical growth, but the range of outcomes highlights the inherent uncertainty in investing. Regularly reviewing and adjusting the portfolio based on changing market conditions could help manage risk.

Asset classes Info

  • Stocks
    90%
  • Cash
    10%

The portfolio is heavily weighted towards stocks, comprising nearly 90% of the allocation, with a small portion in cash-like assets. This allocation offers potential for growth but also increases exposure to market volatility. Compared to typical balanced portfolios, which often include bonds, this portfolio is less diversified across asset classes. To achieve a more balanced risk-return profile, consider incorporating bonds or alternative investments, which can provide stability and reduce overall portfolio volatility.

Sectors Info

  • Financials
    19%
  • Technology
    18%
  • Health Care
    13%
  • Industrials
    10%
  • Consumer Discretionary
    8%
  • Consumer Staples
    8%
  • Energy
    5%
  • Telecommunications
    4%
  • Basic Materials
    2%
  • Utilities
    2%
  • Real Estate
    1%

The sector allocation is fairly diversified, with significant exposure to financial services, technology, and healthcare. However, there is a notable concentration in these sectors, which could lead to increased volatility if these industries face downturns. Compared to common benchmarks, this allocation is somewhat typical, but the large-cap focus may miss out on growth opportunities in smaller sectors. To reduce sector-specific risks, consider rebalancing towards underrepresented sectors, which could enhance diversification and potentially capture emerging trends.

Regions Info

  • North America
    90%

The portfolio is predominantly focused on North America, with over 89% of assets allocated there, leaving minimal exposure to other regions. This geographic concentration may limit diversification and expose the portfolio to regional economic risks. Compared to global benchmarks, this allocation is significantly skewed towards the U.S. To enhance geographic diversification, consider adding international equities or funds, which can provide exposure to different economic cycles and growth opportunities outside North America.

Redundant positions Info

  • SPDR Dow Jones Industrial Average ETF Trust
    Vanguard S&P 500 ETF
    Schwab U.S. Dividend Equity ETF
    Vanguard Dividend Appreciation Index Fund ETF Shares
    Vanguard Mega Cap Value Index Fund ETF Shares
    iShares Core Dividend Growth ETF
    High correlation

The assets in the portfolio are highly correlated, particularly among the equity ETFs, which limits the diversification benefits. Highly correlated assets tend to move together, especially during market downturns, potentially increasing overall portfolio risk. To improve diversification, consider replacing some of the overlapping ETFs with those that have lower correlations, such as adding bonds or international equities, which can provide different risk-return characteristics and reduce portfolio volatility.

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.

Optimizing the portfolio using the Efficient Frontier involves adjusting the current assets to achieve the best possible risk-return ratio. Given the high correlation among assets, optimization could involve reallocating towards less correlated options to improve efficiency. Remember, efficiency here refers to maximizing returns for a given level of risk, not necessarily achieving diversification. Regularly reassessing the portfolio's alignment with the Efficient Frontier can help ensure it remains well-positioned in changing market environments.

Dividends Info

  • SPDR® Bloomberg 1-3 Month T-Bill ETF 5.00%
  • iShares Core Dividend Growth ETF 2.30%
  • SPDR Dow Jones Industrial Average ETF Trust 1.30%
  • Vanguard Mega Cap Value Index Fund ETF Shares 2.30%
  • Schwab U.S. Dividend Equity ETF 3.70%
  • Vanguard Dividend Appreciation Index Fund ETF Shares 1.70%
  • Vanguard S&P 500 ETF 1.30%
  • Weighted yield (per year) 2.25%

The portfolio has a strong focus on dividend-paying ETFs, with a total yield of 2.25%. This yield can provide a steady income stream, appealing to investors seeking regular cash flow. Dividend-focused strategies can also offer some downside protection during market volatility. However, it's important to balance income generation with growth potential. Consider periodically reviewing the dividend yield in relation to market conditions and adjusting the allocation to ensure it aligns with your overall investment objectives.

Ongoing product costs Info

  • SPDR® Bloomberg 1-3 Month T-Bill ETF 0.14%
  • iShares Core Dividend Growth ETF 0.08%
  • SPDR Dow Jones Industrial Average ETF Trust 0.16%
  • Vanguard Mega Cap Value Index Fund ETF Shares 0.07%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard Dividend Appreciation Index Fund ETF Shares 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.09%

The portfolio's total expense ratio (TER) is impressively low at 0.09%, which is beneficial for long-term returns. Lower costs mean more of your investment returns are retained, contributing to better compounding over time. This cost efficiency aligns well with best practices in portfolio management. However, it's still important to periodically review the expense ratios of individual ETFs to ensure they remain competitive. Keeping costs low without sacrificing diversification or performance should remain a priority.

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