A growth-focused portfolio with high US exposure and strong historical returns

Report created on Jan 13, 2025

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

The portfolio is heavily weighted towards equities, with ETFs constituting 100% of the asset allocation. The Vanguard Growth Index Fund ETF Shares and Vanguard S&P 500 ETF make up 80% of the portfolio, indicating a strong focus on US large-cap stocks. This composition aligns with many growth-oriented portfolios but may lack exposure to other asset classes like bonds or real estate. While this focus can drive growth, it also increases vulnerability to market downturns. Consider diversifying into other asset classes to mitigate risk and enhance stability.

Growth Info

Historically, the portfolio has performed well, achieving a Compound Annual Growth Rate (CAGR) of 13.93%. This impressive growth rate surpasses many benchmarks, reflecting the strong performance of US equities. However, the portfolio also experienced a maximum drawdown of -32.66%, highlighting its sensitivity to market volatility. While past performance is not indicative of future results, maintaining a balance between high returns and risk management is crucial. Regularly reviewing and adjusting the portfolio can help sustain growth while reducing potential losses during downturns.

Projection Info

Forward projections using Monte Carlo simulations suggest a wide range of potential outcomes, with a median return of 362.99% and a 5th percentile return of 46.41%. Monte Carlo simulations use historical data to estimate future performance, but they cannot predict market changes or unforeseen events. While the projections are optimistic, with 980 out of 1,000 simulations showing positive returns, it's essential to remain cautious. Diversifying the portfolio further and maintaining a long-term perspective can help navigate volatility and improve the likelihood of achieving desired outcomes.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely allocated to stocks, with a negligible amount in cash and other assets. This heavy stock allocation can drive growth but also increases risk, especially during market downturns. Compared to benchmark portfolios, which often include a mix of stocks, bonds, and other asset classes, this portfolio may benefit from greater diversification. Introducing bonds or alternative investments could reduce volatility and provide more stability. Balancing asset classes can enhance the risk-return profile and align with broader diversification standards.

Sectors Info

  • Technology
    37%
  • Consumer Discretionary
    13%
  • Financials
    11%
  • Telecommunications
    10%
  • Health Care
    8%
  • Industrials
    7%
  • Consumer Staples
    4%
  • Basic Materials
    3%
  • Energy
    2%
  • Real Estate
    2%
  • Utilities
    2%

Sector allocation reveals a significant concentration in technology at 37.17%, followed by consumer cyclicals and financial services. This tech-heavy focus can lead to higher returns during periods of innovation and growth but also increases exposure to sector-specific risks, such as regulatory changes or tech market corrections. While diversification across ten sectors is commendable, consider reducing reliance on technology and increasing exposure to underrepresented areas like utilities or real estate. This adjustment could enhance stability and reduce vulnerability to sector-specific downturns.

Regions Info

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

The portfolio's geographic allocation is heavily skewed towards North America, with 81.40% exposure. While this aligns with the portfolio's growth focus, it limits diversification and increases vulnerability to regional economic shifts. Exposure to Europe, Asia, and other regions is relatively low compared to global benchmarks. Increasing allocations to international markets could provide diversification benefits and reduce regional risk. This approach can capture growth opportunities in emerging markets and balance the portfolio against potential downturns in the US economy.

Redundant positions Info

  • Vanguard Growth Index Fund ETF Shares
    Vanguard S&P 500 ETF
    High correlation

The portfolio's assets, particularly the Vanguard Growth Index Fund ETF Shares and Vanguard S&P 500 ETF, exhibit high correlation. Highly correlated assets tend to move in tandem, which can limit diversification benefits and increase risk during market downturns. While correlation can enhance returns during bull markets, it may lead to significant losses during corrections. Consider replacing one of the correlated ETFs with an asset that has a lower correlation to improve diversification. This adjustment can mitigate risk and enhance the portfolio's resilience during volatile periods.

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 current allocation could be optimized using the Efficient Frontier, which seeks the best risk-return balance. However, the presence of highly correlated assets limits diversification benefits. Before optimizing, consider addressing these correlations by introducing assets with lower correlation. This step can enhance the portfolio's efficiency and improve its position on the Efficient Frontier. Remember, optimization focuses on maximizing returns for a given level of risk, not necessarily diversification. Regular reviews and adjustments can maintain optimal performance.

Dividends Info

  • Vanguard S&P 500 ETF 1.30%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Vanguard Total International Stock Index Fund ETF Shares 3.40%
  • Weighted yield (per year) 1.32%

The portfolio's total dividend yield is 1.32%, with the Vanguard Total International Stock Index Fund ETF Shares contributing the highest yield at 3.4%. While dividends provide a steady income stream and can enhance total returns, the portfolio's focus on growth-oriented ETFs results in a relatively low yield. For investors seeking income, consider incorporating higher-yielding assets. However, for those prioritizing growth, the current yield may suffice. Balancing growth and income objectives can optimize the portfolio's performance and align with the investor's financial goals.

Ongoing product costs Info

  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.04%

The portfolio benefits from impressively low costs, with a total expense ratio (TER) of 0.04%. Low costs are crucial for long-term performance, as they minimize the drag on returns. This cost efficiency aligns well with best practices and supports better compounding over time. Investors should continue to monitor expenses and seek opportunities to reduce costs further if possible. Maintaining a focus on low-cost investments can enhance returns and contribute to achieving long-term financial objectives.

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