A balanced portfolio with strong US focus and moderate risk but limited diversification

Report created on Mar 21, 2025

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 heavily weighted towards equities, with 100% of assets in stock ETFs. The Vanguard S&P 500 ETF dominates at 45%, followed by the Invesco NASDAQ 100 ETF at 25%. This composition leans towards large-cap US equities, potentially aligning with a growth-focused strategy. However, the lack of diversification across asset classes may expose the portfolio to market volatility. To enhance resilience, consider introducing bonds or international equities, which can provide a buffer during downturns and reduce overall risk.

Growth Info

Historically, the portfolio has delivered a strong Compound Annual Growth Rate (CAGR) of 13.65%, significantly outperforming many benchmarks. However, it's important to note the maximum drawdown of -23.85%, indicating substantial temporary losses during market downturns. This performance suggests a high reward but also a high risk. While past success is encouraging, remember that historical performance doesn't guarantee future results. To mitigate potential losses, consider strategies that can provide downside protection, such as diversifying into less volatile asset classes.

Projection Info

The Monte Carlo simulation, which uses historical data to project future outcomes, shows promising results with a median return of 492.4% over the long term. However, it's crucial to remember that these projections are not certainties. They provide a range of potential outcomes, with 997 out of 1,000 simulations showing positive returns. This suggests a high likelihood of growth, but it's wise to prepare for varying market conditions. Regularly reviewing and adjusting the portfolio can help align with changing economic landscapes and personal goals.

Asset classes Info

  • Stocks
    100%

The portfolio's 100% allocation to stocks indicates a focus on capital appreciation. While this can lead to strong growth, it also increases exposure to market volatility. In contrast, a more diversified asset allocation typically includes bonds or alternative investments, which can offer stability and income. By incorporating these elements, the portfolio could achieve a better balance between risk and return. This approach aligns with the principle of not putting all your eggs in one basket, which can help safeguard against market downturns.

Sectors Info

  • Technology
    31%
  • Financials
    12%
  • Health Care
    11%
  • Consumer Discretionary
    11%
  • Telecommunications
    10%
  • Industrials
    8%
  • Consumer Staples
    8%
  • Energy
    4%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    1%

The portfolio's sector allocation is heavily skewed towards technology at 31%, followed by financial services and healthcare. This concentration in tech could lead to higher volatility, especially during periods of regulatory changes or interest rate hikes. While tech has been a strong performer, over-reliance on a single sector can increase risk. To achieve a more balanced sector exposure, consider gradually reallocating to underrepresented sectors like utilities or consumer defensives, which can provide stability and reduce overall portfolio risk.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

With 99% of the portfolio's geographic allocation in North America, there's a significant home-country bias. This limits exposure to international markets, which can offer diversification benefits and reduce regional risk. While the US market has been strong, global diversification can provide access to different growth opportunities and economic cycles. Consider gradually increasing exposure to developed and emerging markets outside North America to enhance diversification and potentially capture gains from global economic growth.

Market capitalization Info

  • Large-cap
    42%
  • Mega-cap
    37%
  • Mid-cap
    19%
  • Small-cap
    1%

The portfolio is well-diversified across market capitalizations, with a focus on large-cap (big and mega) stocks, which make up 79% of the allocation. This provides stability due to the established nature of these companies. However, the low exposure to small-cap stocks may limit growth potential, as smaller companies can offer higher returns over time. To balance stability and growth, consider increasing the allocation to small- and mid-cap stocks, which can enhance diversification and provide opportunities for higher returns.

Redundant positions Info

  • Vanguard Value Index Fund ETF Shares
    Schwab U.S. Dividend Equity ETF
    High correlation

The portfolio's assets, particularly the Vanguard Value Index Fund ETF Shares and Schwab U.S. Dividend Equity ETF, exhibit high correlation. This means they tend to move in the same direction, which can limit diversification benefits. In market downturns, highly correlated assets may not provide the desired risk mitigation. To improve diversification, consider replacing one of these ETFs with an asset that has a lower correlation to the rest of the portfolio. This can help smooth out returns and reduce overall risk.

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's current allocation may not be fully optimized along the Efficient Frontier, which represents the best possible risk-return trade-off. By adjusting the weights of existing assets, it may be possible to achieve a more favorable balance between risk and return. This involves evaluating the risk and return characteristics of each asset and rebalancing the portfolio accordingly. While the current setup is reasonably efficient, exploring optimization strategies can enhance performance and better align the portfolio with investment goals.

Dividends Info

  • Invesco NASDAQ 100 ETF 0.50%
  • Schwab U.S. Dividend Equity ETF 2.80%
  • Vanguard S&P 500 ETF 1.30%
  • Vanguard Value Index Fund ETF Shares 2.30%
  • Weighted yield (per year) 1.48%

The portfolio's dividend yield stands at 1.48%, with the Schwab U.S. Dividend Equity ETF contributing the most at 2.80%. Dividends can provide a steady income stream and buffer against market volatility. For investors seeking income alongside growth, maintaining or increasing the allocation to high-dividend ETFs can enhance returns. However, it's important to balance this with growth-oriented assets to achieve a comprehensive investment strategy. Regularly reviewing dividend yields can ensure they align with income objectives.

Ongoing product costs Info

  • Invesco NASDAQ 100 ETF 0.15%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Value Index Fund ETF Shares 0.04%
  • Weighted costs total (per year) 0.07%

The portfolio's total expense ratio (TER) is impressively low at 0.07%, indicating cost-efficiency. Lower costs can significantly enhance long-term returns by minimizing the drag on performance. This aligns well with best practices for maximizing investment gains. While the current cost structure is advantageous, it's important to periodically review fees to ensure they remain competitive. Continually seeking low-cost investment options can further optimize returns, allowing more of the portfolio's growth to benefit the investor.

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