Balanced Risk Portfolio with Low Diversity and Heavy US Focus

Report created on Dec 3, 2024

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 composed entirely of the Vanguard S&P 500 ETF, making it heavily concentrated in a single asset. This ETF tracks the performance of the S&P 500 index, which covers 500 of the largest companies in the United States. While this provides exposure to a broad range of sectors, the lack of diversification across different asset classes and regions can increase risk. To optimize for stability, consider diversifying into other asset classes like bonds or international equities. This would help spread risk and potentially smooth returns in volatile market conditions.

Growth Info

Historically, the portfolio has shown strong performance with a CAGR of 14.19%. This indicates that over time, the portfolio has grown at a healthy rate, reflecting the overall growth of the US stock market. However, it also experienced a significant maximum drawdown of -34.03%, highlighting its vulnerability during market downturns. This performance suggests that while the portfolio has the potential for high returns, it also carries considerable risk. To mitigate this risk, consider strategies that can provide downside protection, such as incorporating more conservative investments.

Projection Info

Using a Monte Carlo simulation, which models potential future performance based on historical data, the portfolio shows promising outcomes. With 1,000 simulations, the median projected return is 534.65%, and 997 simulations show positive returns. This suggests a high likelihood of future gains if the market continues to perform well. However, the projections also show variability, with the 5th percentile at 102.67% and the 67th percentile at 731.13%. To enhance predictability, consider adding investments that offer more stable returns, which can help balance the volatility inherent in equity-heavy portfolios.

Asset classes Info

  • Stocks
    100%

The portfolio is predominantly invested in stocks, with a minor cash component. This allocation aligns with a growth-oriented strategy, focusing on capital appreciation. While this can lead to substantial returns, it also exposes the portfolio to market fluctuations. A more balanced approach might involve introducing fixed-income securities, which can provide a buffer during equity market downturns. This would not only reduce volatility but also offer a more consistent income stream, aligning with a balanced risk profile.

Sectors Info

  • Technology
    33%
  • Financials
    13%
  • Health Care
    11%
  • Consumer Discretionary
    10%
  • Telecommunications
    9%
  • Industrials
    8%
  • Consumer Staples
    6%
  • Energy
    3%
  • Utilities
    3%
  • Real Estate
    2%
  • Basic Materials
    2%

Sector allocation within the portfolio is diverse, with a significant emphasis on technology at 33.02%. Other notable sectors include financial services, healthcare, and consumer cyclicals. Such a distribution reflects the composition of the S&P 500, which can be advantageous in periods of sector growth. However, reliance on a few sectors increases vulnerability to sector-specific downturns. To mitigate this risk, consider periodically reviewing sector exposure and adjusting allocations to ensure a more balanced sector representation.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is heavily concentrated in North America, specifically the US, with minimal exposure to Europe and Asia. This focus on the US market can be beneficial when the domestic economy is strong but poses a risk if it underperforms. To achieve a more globally diversified portfolio, consider increasing exposure to international markets. This can help hedge against regional economic downturns and take advantage of growth opportunities in other parts of the world.

Dividends Info

  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.20%

The portfolio has a dividend yield of 1.2%, primarily from the Vanguard S&P 500 ETF. This yield provides a modest income stream, which can be reinvested to compound growth over time. While dividends can offer a cushion during market volatility, the current yield may not be sufficient for investors seeking significant income. To increase dividend income, consider exploring high-dividend-paying stocks or funds. This approach can enhance the portfolio's income-generating potential while maintaining exposure to equity markets.

Ongoing product costs Info

  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.03%

The portfolio benefits from low costs, with a Total Expense Ratio (TER) of 0.03% from the Vanguard S&P 500 ETF. Low costs are advantageous as they minimize the drag on portfolio returns, allowing more of the investment gains to be retained. This cost efficiency supports the overall performance of the portfolio, especially over the long term. Maintaining low costs should remain a priority, and any future investments should also be scrutinized for their cost structures to ensure they do not erode returns.

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