A balanced portfolio with a strong focus on U.S. equities and low diversification

Report created on Jan 20, 2025

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 heavily concentrated in U.S. equities, with 94.38% allocated to the Vanguard S&P 500 ETF and 5.62% to the Schwab U.S. Dividend Equity ETF. This composition leans towards large-cap, blue-chip stocks, reflecting a focus on stability and growth. Compared to a typical balanced portfolio, this one is less diversified, with a single asset class dominating the allocation. Diversification is crucial for risk management, so consider introducing other asset classes like bonds or international equities to enhance stability and reduce exposure to market-specific risks.

Growth Info

Historically, the portfolio has delivered a strong Compound Annual Growth Rate (CAGR) of 14.02%, which is impressive. This performance aligns closely with the S&P 500 index, reflecting the portfolio's heavy reliance on it. However, the maximum drawdown of -33.92% indicates significant volatility, typical for equity-heavy portfolios. While past performance can be a useful guide, remember it doesn't guarantee future results. To mitigate potential downturns, consider incorporating assets that have historically moved differently than U.S. equities, like bonds or international stocks.

Projection Info

The Monte Carlo simulation, a tool that uses historical data to project future outcomes, suggests a wide range of potential end values. The 5th percentile shows a modest gain of 89.5%, while the 67th percentile projects a robust 644.7% increase. With 996 out of 1,000 simulations showing positive returns, the outlook appears optimistic. However, remember that these projections are based on historical trends and assumptions, which may not hold true in the future. Diversifying into different asset classes could help smooth out the ride and potentially improve outcomes.

Asset classes Info

  • Stocks
    100%

The portfolio is entirely composed of stocks, lacking exposure to other asset classes like bonds, real estate, or commodities. While stocks can offer high returns, they also come with higher volatility. A well-diversified portfolio typically includes a mix of asset classes to balance risk and return. Consider adding bonds for income and stability, or real estate for potential growth and inflation protection. This diversification can help cushion against market downturns and provide a more consistent performance over time.

Sectors Info

  • Technology
    31%
  • Financials
    14%
  • Health Care
    11%
  • Consumer Discretionary
    11%
  • Telecommunications
    9%
  • Industrials
    8%
  • Consumer Staples
    6%
  • Energy
    4%
  • Utilities
    2%
  • Real Estate
    2%
  • Basic Materials
    2%

Sector allocation shows a strong emphasis on technology (31%), followed by financial services (14%) and healthcare (11%). While this mirrors the S&P 500's sector weights, it can lead to increased volatility, especially during sector-specific downturns. For instance, technology-heavy portfolios may face challenges during interest rate hikes. To mitigate this, consider rebalancing to ensure a more even distribution across sectors. This can help manage risk by reducing dependence on the performance of any single sector.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

The portfolio's geographic exposure is overwhelmingly in North America (99%), with minimal presence in other regions. This heavy concentration poses a risk if the U.S. market underperforms. Diversifying into international markets, including Europe or emerging economies, can enhance geographic diversification, potentially reducing risk and capturing growth opportunities abroad. While the U.S. market has been strong, global diversification can provide a hedge against regional economic downturns and currency fluctuations.

Market capitalization Info

  • Mega-cap
    44%
  • Large-cap
    36%
  • Mid-cap
    19%
  • Small-cap
    1%

The portfolio is predominantly invested in mega (44%) and big (36%) market capitalization stocks, with minimal exposure to small caps (1%). This focus on large, established companies offers stability but may limit growth potential compared to smaller, potentially faster-growing firms. Including more small and medium-cap stocks can enhance diversification and provide exposure to different growth dynamics. This can be particularly beneficial during periods when smaller companies outperform their larger counterparts.

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's risk-return profile can be optimized using the Efficient Frontier, which seeks the best possible risk-return ratio. This approach involves adjusting the allocation between existing assets to achieve optimal efficiency. While the current portfolio is aligned with the S&P 500, introducing other asset classes could enhance this optimization. By doing so, you can potentially achieve higher returns for the same level of risk or maintain returns while reducing risk.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.60%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.33%

The portfolio's dividend yield stands at 1.33%, driven by the Schwab U.S. Dividend Equity ETF's higher yield of 3.60%. Dividends can provide a steady income stream, which is beneficial for investors seeking cash flow. However, the overall yield is modest, reflecting the growth-oriented nature of the S&P 500 ETF. If income is a priority, consider increasing exposure to dividend-focused assets. This can enhance cash flow while maintaining potential for capital appreciation.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.03%

Portfolio costs are impressively low, with a Total Expense Ratio (TER) of 0.03%. This is a significant advantage, as lower costs contribute to better long-term returns by minimizing the drag on performance. Keeping expenses in check is crucial for maximizing investment gains over time. This cost efficiency aligns well with best practices, assuring you that your portfolio is on the right track in terms of managing fees. Continue to monitor and prioritize low-cost investment options.

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