Balanced portfolio with strong tech exposure and high dividend ETF inclusion

Report created on Jan 30, 2025

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 equally split across five ETFs, each holding a 20% stake. This balanced distribution provides a solid foundation for diversification. However, it leans heavily towards equities with no significant allocation to bonds or alternative assets. Compared to typical balanced benchmarks, this portfolio has a higher equity concentration, which may increase volatility. To enhance diversification, consider incorporating fixed-income securities or alternative investments. This could help stabilize returns during market downturns and align more closely with a balanced portfolio strategy.

Growth Info

Historically, the portfolio has shown impressive growth with a CAGR of 16%, outperforming many benchmarks. However, it also experienced a maximum drawdown of -18.1%, indicating potential volatility. Such performance highlights the portfolio's growth potential but also its susceptibility to market swings. While past performance doesn't guarantee future results, maintaining a diversified asset base can help mitigate risks. Consider monitoring market conditions and adjusting allocations as needed to manage potential downturns effectively.

Projection Info

The Monte Carlo simulation, using 1,000 iterations, projects a wide range of outcomes, with a median return of 724.4%. It shows a 5th percentile outcome of 141.6%, indicating potential for lower returns in adverse conditions. This simulation uses historical data, which may not predict future market behavior accurately. While the simulation suggests strong growth potential, it's essential to remain cautious and prepared for volatility. Regularly reviewing and adjusting the portfolio based on changing market conditions can help maintain alignment with financial goals.

Asset classes Info

  • Stocks
    96%
  • No data
    3%

The portfolio is heavily weighted towards stocks, comprising 96% of the total allocation, with negligible exposure to other asset classes. This concentration increases the potential for significant growth but also raises the risk of volatility. Compared to balanced benchmarks, this allocation lacks the stability typically provided by bonds or alternative investments. To achieve a more balanced risk-return profile, consider adding fixed-income or alternative assets. This could provide a cushion during equity market downturns and enhance long-term stability.

Sectors Info

  • Technology
    40%
  • Consumer Discretionary
    12%
  • Telecommunications
    11%
  • Health Care
    10%
  • Industrials
    7%
  • Financials
    7%
  • Consumer Staples
    6%
  • Basic Materials
    2%
  • Energy
    2%
  • Utilities
    1%
  • Real Estate
    1%

The portfolio is notably tech-heavy, with 40% exposure to the technology sector, significantly higher than typical benchmarks. While this positions the portfolio to benefit from tech growth, it also increases vulnerability to sector-specific downturns. Other sectors like consumer cyclicals and communication services have moderate representation. To reduce risk, consider diversifying into less represented sectors such as utilities or real estate. This could provide a buffer against tech sector volatility and improve overall portfolio resilience.

Regions Info

  • North America
    81%
  • Europe Developed
    10%
  • Japan
    5%
  • Asia Emerging
    2%
  • Asia Developed
    1%

With 81% of the portfolio allocated to North America, there's a strong home-country bias. While this aligns with the client's USA region, it limits exposure to global opportunities. Emerging markets and regions like Africa and Latin America are notably absent, which could reduce potential growth and diversification benefits. To enhance geographic diversification, consider increasing allocations to underrepresented regions. This could help capture growth opportunities in emerging markets and reduce reliance on the North American market.

Market capitalization Info

  • Mega-cap
    55%
  • Large-cap
    30%
  • Mid-cap
    11%
  • Small-cap
    1%

The portfolio is predominantly invested in mega-cap stocks, which make up 55% of the allocation. This focus on large, established companies provides stability but may limit growth potential compared to smaller market caps. The exposure to small and micro caps is minimal, which could reduce opportunities for higher returns. To balance growth and stability, consider increasing allocations to medium and small-cap stocks. This could enhance the portfolio's growth potential while maintaining a stable core of large-cap investments.

Redundant positions Info

  • Vanguard S&P 500 ETF
    Invesco NASDAQ 100 ETF
    Schwab U.S. Large-Cap Growth ETF
    JPMorgan Nasdaq Equity Premium Income ETF
    High correlation

The portfolio includes highly correlated assets, particularly among the ETFs focused on the Nasdaq and S&P 500 indices. High correlation means these assets tend to move together, which could limit diversification benefits during market downturns. Diversification aims to reduce risk by spreading investments across uncorrelated assets. Consider replacing some of these ETFs with others that have lower correlation to the existing holdings. This could enhance diversification and potentially improve risk-adjusted returns.

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 on the Efficient Frontier, focus on reducing asset overlap. The portfolio's highly correlated ETFs limit diversification benefits, impacting risk-return efficiency. The Efficient Frontier represents the best possible risk-return balance for a given set of assets. By replacing some correlated ETFs with less correlated alternatives, the portfolio could achieve a more optimal risk-return ratio. This approach can enhance diversification and potentially improve overall portfolio performance.

Dividends Info

  • JPMorgan Nasdaq Equity Premium Income ETF 9.50%
  • Invesco NASDAQ 100 ETF 0.60%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard International Dividend Appreciation Index Fund ETF Shares 1.90%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 2.72%

The portfolio's total dividend yield is 2.72%, primarily driven by the JPMorgan Nasdaq Equity Premium Income ETF. This yield provides a steady income stream, beneficial for investors seeking regular cash flow. While the other ETFs offer lower yields, they contribute to growth potential. For income-focused investors, maintaining or increasing the allocation to high-dividend ETFs could enhance cash flow. However, ensure that this doesn't compromise growth objectives or increase risk disproportionately.

Ongoing product costs Info

  • JPMorgan Nasdaq Equity Premium Income ETF 0.35%
  • Invesco NASDAQ 100 ETF 0.15%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Vanguard International Dividend Appreciation Index Fund ETF Shares 0.15%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.14%

The portfolio's total expense ratio (TER) is 0.14%, which is impressively low and beneficial for long-term performance. Lower costs mean more of the investment's returns are retained, enhancing compounding over time. This cost efficiency aligns well with best practices for maintaining a cost-effective portfolio. Regularly review the TER and consider lower-cost alternatives if available. However, ensure that any changes don't compromise the portfolio's overall strategy or risk-return profile.

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