Balanced Portfolio with High US Exposure and Technology Focus Needs Optimization for Better Diversification

Report created on Jul 8, 2024

Risk profile Info

4/7
Balanced
← Less risk More risk →

Diversification profile Info

4/5
Broadly Diversified
← Less diversification More diversification →

Positions

The portfolio is composed of four ETFs, with the Vanguard S&P 500 ETF making up nearly 70% of the total. This high concentration in a single ETF indicates a strong focus on large-cap US stocks. While the other three ETFs provide some diversification, the overall composition leans heavily towards US equities. This could expose the portfolio to risks associated with the US market. A more diversified approach could be beneficial, potentially by adding assets that cover different regions or asset classes to balance the exposure and reduce risk.

Growth Info

Historically, the portfolio has performed well, with a CAGR of 14.19%. This impressive growth rate suggests strong past performance, likely driven by the robust returns of the US stock market. However, the maximum drawdown of -26.2% highlights potential volatility and risk. This means that while the portfolio has seen significant gains, it has also experienced substantial downsides. To maintain strong performance while minimizing risk, it's important to consider strategies that can mitigate volatility, such as diversifying into less correlated assets or incorporating fixed-income securities.

Projection Info

Using a Monte Carlo simulation with a hypothetical initial investment, the portfolio's projected annualized return is 14.76%. This statistical method uses random sampling to simulate future returns, offering a range of possible outcomes. The results indicate a strong likelihood of positive returns, with 993 out of 1,000 simulations showing gains. However, the projections also underscore the importance of diversification, as the portfolio's high concentration in US equities could lead to increased risk in less favorable market conditions. Exploring additional asset classes may provide more stability and potential for consistent growth.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely invested in stocks, with a negligible allocation to cash and other asset classes. This lack of diversification across asset classes may expose the portfolio to higher volatility. Stocks can offer high returns but also come with significant risk, especially during market downturns. To reduce risk and enhance stability, consider incorporating other asset classes such as bonds or real estate investment trusts (REITs). These can provide balance and potential income, helping to mitigate the impact of stock market fluctuations on the overall portfolio performance.

Sectors Info

  • Technology
    31%
  • Financials
    13%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Telecommunications
    9%
  • Industrials
    9%
  • Consumer Staples
    6%
  • Energy
    3%
  • Basic Materials
    3%
  • Utilities
    3%
  • Real Estate
    2%

The portfolio is heavily weighted towards the technology sector, accounting for over 31% of the total allocation. While technology stocks have driven significant growth in recent years, this sector concentration increases vulnerability to sector-specific risks. Other sectors like financial services and consumer cyclicals also have notable allocations, but there's limited exposure to defensive sectors. Balancing sector allocation can help manage risk and improve resilience against market volatility. Consider increasing exposure to sectors that perform well in different economic cycles, thereby enhancing the portfolio's ability to withstand market fluctuations.

Regions Info

  • North America
    82%
  • Europe Developed
    8%
  • Asia Emerging
    3%
  • Japan
    3%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

Geographically, the portfolio is predominantly focused on North America, with over 81% of assets allocated to this region. While this reflects the strength of the US market, it limits exposure to international growth opportunities. The remaining allocation is spread across Europe, Asia, and other regions, but these are relatively small percentages. To capitalize on global economic growth and reduce regional risk, consider increasing exposure to international markets. This can provide access to diverse economic environments and potentially enhance returns while reducing reliance on the US market's performance.

Redundant positions Info

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

The portfolio contains highly correlated assets, particularly among the Invesco NASDAQ 100 ETF, Invesco QQQ Trust, and Vanguard S&P 500 ETF. These ETFs tend to move in tandem, offering limited diversification benefits. While correlation can lead to amplified gains during market upswings, it also means increased risk during downturns. To achieve better diversification, consider adding assets with lower correlations to the existing holdings. This can help smooth out returns and reduce the impact of negative market movements, ultimately leading to 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.

Before optimizing, focus on reducing asset overlap to enhance diversification. The current portfolio has highly correlated ETFs that offer limited unique benefits. By moving along the efficient frontier, a riskier portfolio can be achieved by increasing exposure to growth-oriented assets, while a more conservative approach would involve adding fixed-income securities or defensive sectors. Consider the portfolio's risk tolerance and investment goals when making adjustments. By addressing correlation issues and exploring diverse asset classes, the portfolio can be better positioned for both growth and stability.

Dividends Info

  • Invesco QQQ Trust 0.60%
  • Invesco NASDAQ 100 ETF 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.48%

The portfolio's overall dividend yield stands at 1.48%, with the Vanguard Total International Stock Index Fund ETF Shares contributing the highest yield at 3.0%. While dividends provide a steady income stream, the portfolio's yield is relatively low. This may be due to the focus on growth-oriented sectors like technology, which typically offer lower dividend payouts. To enhance income potential, consider incorporating dividend-focused investments. This can provide regular cash flow and add a layer of stability, especially during periods of market volatility when capital gains may be harder to achieve.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • Invesco NASDAQ 100 ETF 0.15%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.06%

The portfolio's total expense ratio (TER) is low at 0.06%, indicating cost-efficient management. Low costs are crucial for maximizing returns as they reduce the drag on performance. The Vanguard S&P 500 ETF and Vanguard Total International Stock Index Fund ETF Shares contribute to this efficiency with their minimal expense ratios. However, the Invesco ETFs have slightly higher costs. While these are still relatively low, it's important to remain mindful of fees, as they can compound over time. Regularly reviewing and optimizing for cost efficiency can help ensure that more of the portfolio's returns are retained.

What next?

Ready to invest in this portfolio?

Select a broker that fits your needs and watch for low fees to maximize your returns.

Select broker

Create your own report?

Analyze your portfolio

Join our community!

Join Discord

The information provided on this platform is for informational purposes only and should not be considered as financial or investment advice. Insightfolio does not provide investment advice, personalized recommendations, or guidance regarding the purchase, holding, or sale of financial assets. The tools and content are intended for educational purposes only and are not tailored to individual circumstances, financial needs, or objectives.

Insightfolio assumes no liability for the accuracy, completeness, or reliability of the information presented. Users are solely responsible for verifying the information and making independent decisions based on their own research and careful consideration. Use of the platform should not replace consultation with qualified financial professionals.

Investments involve risks. Users should be aware that the value of investments may fluctuate and that past performance is not an indicator of future results. Investment decisions should be based on personal financial goals, risk tolerance, and independent evaluation of relevant information.

Insightfolio does not endorse or guarantee the suitability of any particular financial product, security, or strategy. Any projections, forecasts, or hypothetical scenarios presented on the platform are for illustrative purposes only and are not guarantees of future outcomes.

By accessing the services, information, or content offered by Insightfolio, users acknowledge and agree to these terms of the disclaimer. If you do not agree to these terms, please do not use our platform.

Instrument logos provided by Elbstream.

Help us improve Insightfolio

Your feedback makes a difference! Share your thoughts in our quick survey. Take the survey