Growth-Focused Portfolio with High Risk and Low Diversification Suggests Potential for Long-Term Returns

Risk profile

  • Secure
    Speculative

The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.

Diversification profile

  • Focused
    Diversified

The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.

What type of investor this portfolio is suitable for

Growth Investors

This portfolio is well-suited for growth-oriented investors with a higher risk tolerance and a long-term investment horizon. Such investors are typically focused on capital appreciation and are willing to endure short-term volatility for the potential of higher returns. They may have financial goals like retirement or wealth accumulation, where time is on their side to ride out market fluctuations. A willingness to accept significant drawdowns in exchange for the possibility of substantial growth is a key characteristic of investors aligned with this portfolio strategy.

Positions

  • Vanguard S&P 500 ETF
    VOO - US9229083632
    50.00%
  • Vanguard Growth Index Fund ETF Shares
    VUG - US9229087369
    20.00%
  • Vanguard Small-Cap Index Fund ETF Shares
    VB - US9229087518
    10.00%
  • Vanguard Mid-Cap Index Fund ETF Shares
    VO - US9229086296
    10.00%
  • Vanguard Value Index Fund ETF Shares
    VTV - US9229087443
    10.00%

The portfolio consists of five ETFs, with a significant 50% allocation to the Vanguard S&P 500 ETF. The remaining 50% is split among Vanguard Growth, Small-Cap, Mid-Cap, and Value Index Fund ETFs. This composition indicates a growth-focused strategy with a heavy reliance on large-cap stocks. The low diversity score suggests that the portfolio could benefit from broader diversification. This concentrated approach might lead to higher volatility but also offers potential for substantial growth. Consider exploring different asset classes or sectors to balance the risk and reward profile.

Growth Info

Historically, the portfolio has delivered a strong CAGR of 13.78%, indicating robust performance over time. However, it has also experienced a maximum drawdown of -34.89%, highlighting the potential for significant short-term losses. This performance suggests that while the portfolio has the potential for high returns, it also carries considerable risk. For investors seeking to maintain such growth, it's essential to be prepared for periods of volatility. Regular assessments and adjustments might help mitigate some of these risks while preserving the portfolio's growth potential.

Projection Info

A Monte Carlo simulation, using a hypothetical initial investment, projects an annualized return of 13.51% with a high probability of positive returns. This technique uses random sampling to predict future outcomes, offering a range of potential scenarios. The projections show considerable growth potential, with a 50th percentile outcome of 382.38% and a 67th percentile of 562.03%. While these figures are promising, they also underscore the uncertainty inherent in the market. Investors should remain mindful of their risk tolerance and be prepared for varying outcomes, ensuring alignment with their long-term financial goals.

Asset classes

  • Stocks
    100%
  • Cash
    0%

The portfolio is heavily weighted in stocks, comprising 99.78% of the total allocation, with a minimal cash position. This concentration in equities aligns with a growth-oriented strategy, aiming for capital appreciation. While stocks offer higher potential returns, they also come with increased volatility. A more balanced approach might involve incorporating other asset classes, such as bonds, to reduce risk and provide stability. Diversifying across asset classes can help smooth out returns over time and protect against market downturns, aligning with a more conservative risk profile.

Sectors

  • Technology
    31%
  • Financials
    13%
  • Health Care
    11%
  • Consumer Discretionary
    11%
  • Industrials
    9%
  • Telecommunications
    8%
  • Consumer Staples
    5%
  • Energy
    3%
  • Real Estate
    3%
  • Utilities
    3%
  • Basic Materials
    2%

The portfolio's sector allocation is dominated by technology at 31%, followed by financial services and healthcare. This weighting reflects a focus on high-growth areas but also exposes the portfolio to sector-specific risks. While tech stocks have driven substantial gains in recent years, they can also be more volatile. Diversifying across additional sectors might help mitigate this risk and provide a more balanced growth trajectory. Consider assessing the potential for other sectors to contribute to the portfolio's performance, ensuring a more resilient investment strategy.

Regions

  • North America
    99%
  • Europe Developed
    1%
  • Asia Developed
    0%
  • Latin America
    0%
  • Asia Emerging
    0%
  • Africa/Middle East
    0%

Geographically, the portfolio is overwhelmingly concentrated in North America, with 99.39% of assets in the region. This focus may limit exposure to global growth opportunities and increase vulnerability to regional economic shifts. While North American markets have historically performed well, diversifying across different geographies could enhance the portfolio's resilience and growth potential. Exploring international markets might provide access to emerging opportunities and reduce the impact of local economic downturns. A more geographically diverse portfolio could offer a more stable and balanced investment approach.

Redundant positions

  • Vanguard Value Index Fund ETF Shares
    Vanguard Small-Cap Index Fund ETF Shares
    Vanguard Growth Index Fund ETF Shares
    Vanguard Mid-Cap Index Fund ETF Shares
    Vanguard S&P 500 ETF
    High correlation

The portfolio exhibits high correlations among its ETFs, with all five funds moving in similar directions historically. This correlation suggests that the portfolio's performance is heavily influenced by the same market factors, which could amplify volatility during downturns. While this alignment can lead to strong performance in bull markets, it also increases risk. Reducing correlation through diversification into less correlated assets might help stabilize returns and reduce risk. A more diversified portfolio can better withstand market fluctuations and provide a smoother investment experience.

Dividends

  • Vanguard Small-Cap Index Fund ETF Shares 1.30%
  • Vanguard Mid-Cap Index Fund ETF Shares 1.40%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Value Index Fund ETF Shares 2.20%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Weighted yield (per year) 1.19%

The portfolio's dividend yield is relatively modest at 1.19%, reflecting its focus on growth rather than income. The Vanguard Value Index Fund ETF contributes the highest yield at 2.2%, while the Growth Index Fund offers the lowest. This yield aligns with a strategy prioritizing capital appreciation over immediate income. For investors seeking higher income, incorporating higher-yielding assets or funds might be beneficial. Balancing growth and income can provide a more comprehensive approach, catering to both short-term cash flow needs and long-term wealth accumulation.

Ongoing product costs

  • Vanguard Small-Cap Index Fund ETF Shares 0.05%
  • Vanguard Mid-Cap Index Fund ETF Shares 0.04%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Value Index Fund ETF Shares 0.04%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Weighted costs total (per year) 0.04%

The portfolio's total expense ratio (TER) is low at 0.04%, reflecting the cost-efficiency of Vanguard ETFs. This low cost structure is advantageous, as it minimizes the drag on returns. Keeping investment costs low is a crucial aspect of maximizing net returns over time. While the current expense ratio is favorable, it's important to regularly review and compare costs to ensure continued efficiency. Maintaining a focus on cost-effective investments can enhance overall performance and contribute to achieving financial goals.

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.

Portfolio optimization suggests that the current allocation is not on the efficient frontier due to high correlations among assets. The efficient frontier represents the set of optimal portfolios offering the highest expected return for a given level of risk. While the current portfolio may not be optimized, it's essential to consider diversification to achieve a more efficient risk-return balance. By exploring less correlated assets, the portfolio could potentially move closer to the efficient frontier, providing a more optimal investment strategy that aligns with the investor's risk tolerance and goals.

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