A highly concentrated portfolio with a strong focus on the US large-cap equity market

Report created on Dec 9, 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 heavily concentrated in large-cap US equities, with 95.85% allocated to the Vanguard S&P 500 ETF and 4.15% to the Invesco NASDAQ 100 ETF. This structure indicates a significant focus on major US companies, primarily in the technology sector. While this concentration can lead to substantial growth potential, it also exposes the portfolio to higher risk due to lack of diversification. To mitigate this, consider introducing other asset classes like bonds or international equities, which can help balance risk and potentially enhance returns.

Growth Info

Historically, the portfolio has demonstrated strong performance, with a compound annual growth rate (CAGR) of 16.18%. This reflects significant gains from the US equity market over recent years. However, it's important to remember that past performance does not guarantee future results. The portfolio experienced a maximum drawdown of -24.96%, indicating potential volatility. Investors should be prepared for short-term fluctuations in value, especially during market downturns. Diversifying the portfolio could help reduce the impact of such drawdowns.

Projection Info

Using Monte Carlo simulations, which analyze potential future outcomes based on historical data, the portfolio shows a wide range of possible results. With 1,000 simulations, the median outcome projects a 756.68% return, while the 5th percentile suggests a more conservative 152.52%. These projections highlight the inherent uncertainty in financial markets and underscore the importance of diversification to manage risk. While the simulations indicate a high probability of positive returns, diversification can provide a buffer against adverse market conditions.

Asset classes Info

  • Stocks
    100%

The portfolio is predominantly composed of stocks, accounting for over 99% of the allocation, with a negligible cash component. This high allocation to equities aligns with a growth-oriented strategy but increases susceptibility to market volatility. Introducing other asset classes like fixed income or real estate can enhance diversification and provide stability during market downturns. A balanced mix of asset classes can help achieve a more consistent risk-return profile, aligning better with a balanced investment strategy.

Sectors Info

  • Technology
    34%
  • Financials
    12%
  • Health Care
    11%
  • Consumer Discretionary
    10%
  • Telecommunications
    9%
  • Industrials
    7%
  • Consumer Staples
    6%
  • Energy
    3%
  • Utilities
    3%
  • Real Estate
    2%
  • Basic Materials
    2%

The sectoral allocation is heavily skewed towards technology, which makes up approximately 34% of the portfolio. While this reflects the strength and growth potential of tech companies, it also introduces sector-specific risks. Other sectors like healthcare and financial services are represented but to a lesser extent. To reduce sector concentration risk, consider increasing exposure to underrepresented sectors. This can help create a more balanced portfolio that is less vulnerable to sector-specific downturns.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

The portfolio's geographic exposure is overwhelmingly concentrated in North America, with over 99% of assets allocated there. This lack of international diversification could expose the portfolio to risks associated with the US market alone. By diversifying geographically, investors can benefit from growth opportunities in other regions and reduce reliance on a single market. Consider adding international equities or funds to achieve a more globally diversified portfolio, potentially smoothing out returns and reducing geographic risk.

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 could benefit from optimization using the Efficient Frontier, which seeks the best possible risk-return ratio. By adjusting the allocation between the current assets, the portfolio could potentially achieve a more favorable balance between risk and return. This process involves analyzing different combinations of asset weights to find the optimal mix. While optimization can enhance efficiency, it's essential to consider the investor's risk tolerance and investment goals to ensure alignment with their overall strategy.

Dividends Info

  • Invesco NASDAQ 100 ETF 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.18%

The portfolio's dividend yield stands at 1.18%, with contributions from both the Vanguard S&P 500 ETF and the Invesco NASDAQ 100 ETF. While this yield provides some income, it is relatively modest and may not be sufficient for income-focused investors. To enhance dividend income, consider incorporating high-dividend-yielding stocks or funds. This can provide a steady income stream and potentially improve total returns, especially in a low-interest-rate environment.

Ongoing product costs Info

  • Invesco NASDAQ 100 ETF 0.15%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.03%

The portfolio's total expense ratio (TER) is quite low at 0.03%, primarily due to the Vanguard S&P 500 ETF's minimal cost. Low costs are beneficial as they can significantly improve long-term returns by reducing the drag on performance. However, it's crucial to balance cost considerations with diversification needs. While keeping expenses low is important, ensuring the portfolio is well-diversified should also be a priority, even if it means slightly higher costs.

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