Balanced Broadly Diversified Portfolio with Strong Historical Returns and High Correlation Among Assets

Report created on Jul 30, 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 five ETFs, with a significant concentration in the Vanguard S&P 500 ETF at 40%. The remaining assets are spread across diversified international and high dividend yield funds. This composition indicates a balanced approach, focusing on both domestic and international equities, with a slight tilt towards dividend-paying stocks. A well-diversified portfolio reduces the risk of significant losses from any single investment. To maintain this balance, regular reviews of the portfolio's composition are recommended to ensure it aligns with your investment goals and risk tolerance.

Growth Info

Historically, the portfolio has performed well, with a compound annual growth rate (CAGR) of 11.74%. This indicates a strong growth trajectory over time, albeit with a maximum drawdown of -34.12%, which highlights potential volatility. The portfolio's performance is driven by a concentrated exposure to the U.S. market, which has been a strong performer historically. While past performance is not indicative of future results, maintaining a diversified approach can help mitigate risks associated with market downturns and enhance long-term growth potential.

Projection Info

Using a Monte Carlo simulation, which projects future performance based on a range of possible outcomes, the portfolio shows promising results. With 1,000 simulations, the median outcome predicts a growth of 306.31%, and 98% of simulations resulted in positive returns. This suggests a high probability of achieving favorable outcomes over time. Monte Carlo simulations provide a probabilistic view of future performance, helping investors understand potential risks and rewards. Continuously monitoring the portfolio and adjusting based on changes in market conditions can enhance its resilience and growth prospects.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, with 99.59% in equities. This allocation suggests a focus on capital appreciation, which can lead to significant growth but also increases exposure to market volatility. A high equity allocation is suitable for investors with a higher risk tolerance and a longer investment horizon. However, it's important to periodically assess whether this allocation aligns with your risk appetite and financial goals. Consider adding more bonds or other asset classes if you want to reduce risk and achieve more stable returns.

Sectors Info

  • Technology
    23%
  • Financials
    17%
  • Health Care
    11%
  • Industrials
    10%
  • Consumer Discretionary
    10%
  • Consumer Staples
    8%
  • Telecommunications
    7%
  • Energy
    6%
  • Utilities
    3%
  • Basic Materials
    3%
  • Real Estate
    2%

The portfolio is well-diversified across various sectors, with technology, financial services, and healthcare being the most prominent. This diversification can help mitigate the impact of sector-specific downturns. However, the concentration in technology may introduce some volatility due to its cyclical nature. Sector diversification is crucial for risk management, as different sectors react differently to economic changes. Regularly reviewing sector allocations ensures that the portfolio remains aligned with your investment strategy and risk tolerance, potentially adjusting as economic conditions evolve.

Regions Info

  • North America
    81%
  • 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, accounting for 80.93% of the allocation. While this reflects confidence in the U.S. market, it also exposes the portfolio to region-specific risks. A smaller portion is invested in developed Europe and emerging Asia, providing some international diversification. Geographic diversification can reduce the impact of regional economic fluctuations and currency risks. To enhance global exposure, consider increasing allocations to other regions, ensuring a more balanced approach that capitalizes on growth opportunities worldwide while mitigating potential regional risks.

Redundant positions Info

  • Vanguard Total Stock Market Index Fund ETF Shares
    Schwab U.S. Dividend Equity ETF
    Vanguard S&P 500 ETF
    Vanguard High Dividend Yield Index Fund ETF Shares
    High correlation

The portfolio exhibits high correlation among its assets, particularly within U.S. equity ETFs. This means that these assets tend to move in the same direction, which can amplify both gains and losses. While correlation can be beneficial during market upswings, it may increase risks during downturns. Understanding asset correlations is crucial for effective risk management. To enhance diversification, consider incorporating assets with lower correlations, such as bonds or alternative investments, which can help smooth out returns and provide a buffer against market volatility.

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.

Portfolio optimization involves aligning investments with the efficient frontier, which represents the optimal risk-reward balance. However, this portfolio's high asset correlation suggests limited diversification benefits, making optimization challenging. Overlapping assets may not significantly enhance returns or reduce risk. To optimize, consider incorporating assets with lower correlations or different characteristics, potentially improving the overall risk-return profile. Regularly reviewing and rebalancing the portfolio can help maintain alignment with the efficient frontier, ensuring that it continues to meet your financial objectives while minimizing unnecessary risks.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.40%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Vanguard High Dividend Yield Index Fund ETF Shares 2.70%
  • Weighted yield (per year) 2.02%

The portfolio's overall dividend yield is 2.02%, with the Schwab U.S. Dividend Equity ETF offering the highest yield at 3.4%. This indicates a focus on generating income alongside capital appreciation. Dividend-paying stocks can provide a steady income stream, which is particularly valuable during periods of market volatility. To optimize dividend income, consider reinvesting dividends to compound growth over time. Regularly reviewing dividend yields and payout ratios can help ensure that the portfolio continues to meet income objectives while maintaining a balance between growth and income.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Vanguard High Dividend Yield Index Fund ETF Shares 0.06%
  • Weighted costs total (per year) 0.05%

The portfolio's total expense ratio (TER) is 0.05%, which is relatively low, indicating cost-effective management. Low costs are crucial for maximizing returns, as high fees can erode gains over time. The Vanguard and Schwab ETFs included in the portfolio are known for their low expense ratios, making them attractive options for cost-conscious investors. To maintain cost efficiency, regularly review the expense ratios of all portfolio holdings and consider replacing higher-cost funds with lower-cost alternatives if necessary, ensuring that investment costs remain aligned with your overall financial objectives.

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