Balanced Portfolio with Broad Diversification and Strong Historical Performance but High Technology Exposure

Report created on Dec 4, 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 three ETFs, with the Vanguard S&P 500 ETF making up 55%, the Invesco NASDAQ 100 ETF at 25%, and the Vanguard Total International Stock Index Fund ETF Shares at 20%. This composition indicates a strong focus on U.S. equities, particularly large-cap stocks. The choice of ETFs suggests a preference for passive management and broad market exposure, which is beneficial for diversification and cost efficiency. However, the heavy weighting in U.S. stocks could expose the portfolio to country-specific risks. Diversifying further into international markets could help mitigate these risks.

Growth Info

Historically, the portfolio has performed remarkably well, with a compound annual growth rate (CAGR) of 14.53%. This impressive performance is indicative of the strong bull market in U.S. equities over recent years. However, the maximum drawdown of -27.53% highlights the potential volatility and risk associated with equity-heavy portfolios. Understanding the days that make up 90% of returns being only 19, suggests that the portfolio's returns are concentrated in a few days. This concentration underscores the importance of staying invested to capture these critical return periods.

Projection Info

The forward projection using a Monte-Carlo simulation, which models potential future outcomes based on historical data, suggests a wide range of possible returns. With a hypothetical initial investment, the 5th percentile outcome is 61.32%, while the 50th and 67th percentiles are 461.98% and 642.26%, respectively. The high number of simulations with positive returns and an annualized return of 14.5% indicates a positive outlook. However, the variability in outcomes suggests the need for a risk management strategy to handle potential market fluctuations.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, comprising 99.64% of the total allocation, with minimal exposure to cash and other asset classes. This allocation aligns with a growth-oriented strategy, aiming to maximize returns through equity investments. While this can be beneficial in a bull market, it also increases exposure to market volatility. Introducing a small allocation to bonds or other fixed-income securities could provide stability and reduce overall portfolio risk, especially during market downturns.

Sectors Info

  • Technology
    34%
  • Financials
    11%
  • Consumer Discretionary
    11%
  • Telecommunications
    10%
  • Health Care
    9%
  • Industrials
    8%
  • Consumer Staples
    6%
  • Energy
    3%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    2%

The sector allocation reveals a significant concentration in technology, making up 33.53% of the portfolio. Other sectors such as financial services, consumer cyclicals, and communication services also have notable allocations. While technology has been a strong performer, this heavy concentration could lead to increased volatility. A more balanced sector allocation could help mitigate sector-specific risks and provide a more stable return profile. Diversifying into underrepresented sectors, like utilities or real estate, could enhance resilience against sector downturns.

Regions Info

  • North America
    81%
  • Europe Developed
    8%
  • Asia Emerging
    3%
  • Japan
    3%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%
  • Latin America
    1%

Geographically, the portfolio is predominantly focused on North America, with 80.62% allocation. Other regions like Europe Developed, Asia Emerging, and Japan have minor allocations. This geographic concentration exposes the portfolio to regional economic and political risks. Expanding the geographic diversification could help balance these risks and tap into growth opportunities in emerging markets. A more globally diversified portfolio can potentially enhance returns and reduce the impact of adverse regional events.

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 optimization chart suggests potential for improvement by adjusting along the efficient frontier. By moving towards a more conservative allocation, the investor could reduce risk while maintaining reasonable returns. Alternatively, increasing exposure to higher-risk assets might enhance returns but with greater volatility. Before optimizing, it's crucial to evaluate the investor's risk tolerance and financial objectives. Prioritizing diversification and risk management can lead to a more balanced and efficient portfolio, aligning with long-term goals.

Dividends Info

  • Invesco NASDAQ 100 ETF 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 2.90%
  • Weighted yield (per year) 1.39%

The portfolio's dividend yield stands at 1.39%, with the Vanguard Total International Stock Index Fund ETF Shares contributing the highest yield at 2.9%. While this yield provides some income, it is relatively modest, reflecting the growth-focused nature of the portfolio. For investors seeking higher income, incorporating dividend-focused funds or stocks could enhance the yield. However, it's crucial to balance the desire for income with the portfolio's overall growth objectives to maintain alignment with long-term goals.

Ongoing product costs Info

  • 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) 0.07%

The portfolio's costs are relatively low, with a total expense ratio (TER) of 0.07%, reflecting the use of cost-effective ETFs. This low-cost structure is advantageous as it minimizes the drag on returns, allowing more of the portfolio's performance to benefit the investor. Maintaining a focus on low-cost investments is a smart strategy for long-term growth. However, it's important to periodically review and compare costs to ensure they remain competitive and aligned with the investor's objectives.

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