A concentrated S&P 500 ETF portfolio with low diversification and moderate risk exposure

Report created on Dec 7, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

This portfolio is entirely composed of the Vanguard S&P 500 ETF, making it heavily concentrated in large-cap U.S. equities. While this singular focus simplifies management and aligns with the U.S. stock market's performance, it lacks diversification across different asset classes. Diversification is crucial for spreading risk and potentially enhancing returns. To achieve a more balanced portfolio, consider incorporating other asset classes like bonds or international equities. This approach can help mitigate risks associated with market volatility specific to U.S. large-cap stocks.

Growth Info

Historically, the Vanguard S&P 500 ETF has shown a strong compound annual growth rate (CAGR) of 14.41%, although it experienced a significant maximum drawdown of -34.02%. This indicates substantial growth potential but also highlights the risk of sharp declines during market downturns. Understanding past performance helps set realistic expectations, but it's essential to recognize that past results do not guarantee future outcomes. Diversifying into other asset classes may help cushion against such drawdowns, potentially leading to a smoother investment journey.

Projection Info

The Monte Carlo simulation, using 1,000 runs, projects a wide range of potential outcomes for this portfolio. The median scenario suggests a 546.47% increase, while the 5th percentile shows a modest 111.84% gain. These projections illustrate the uncertainty in future performance, even when based on historical data. Monte Carlo simulations provide a probabilistic view, offering insights into possible scenarios. However, they rely on past data, which may not fully capture future market dynamics. It's advisable to remain flexible and prepared for various market conditions.

Asset classes Info

  • Stocks
    100%

With 99.92% of the portfolio in stocks and a negligible cash component, the portfolio is heavily skewed towards equities. This concentration in a single asset class increases exposure to equity market volatility. Diversification across different asset classes, such as bonds or alternative investments, can help reduce risk and stabilize returns. By including a mix of assets with varying risk-return profiles, investors can potentially achieve a more balanced portfolio that aligns with their risk tolerance and investment goals.

Sectors Info

  • Technology
    33%
  • Financials
    13%
  • Health Care
    11%
  • Consumer Discretionary
    10%
  • Telecommunications
    9%
  • Industrials
    8%
  • Consumer Staples
    6%
  • Energy
    3%
  • Utilities
    3%
  • Real Estate
    2%
  • Basic Materials
    2%

The portfolio is heavily weighted towards the technology sector, comprising over 33% of the allocation, with significant exposure to financial services and healthcare as well. While these sectors have driven growth, they also introduce sector-specific risks. A downturn in any of these sectors could disproportionately impact the portfolio's performance. Diversifying across a broader range of sectors can help mitigate these risks and ensure more balanced exposure to different economic cycles and industry trends.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is almost entirely concentrated in North America, with minimal exposure to Europe and Asia. This lack of geographic diversification limits the portfolio's ability to capitalize on growth opportunities in other regions and increases vulnerability to U.S.-specific economic risks. Expanding geographic exposure can enhance diversification, providing access to different economic growth drivers and potentially reducing overall portfolio risk. Consider incorporating international equities for a more globally diversified portfolio.

Dividends Info

  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.20%

The Vanguard S&P 500 ETF offers a modest dividend yield of 1.2%, contributing to the overall return through income generation. While dividends provide a steady income stream, relying solely on them may not suffice for income-focused investors. To enhance dividend income, consider incorporating higher-yielding assets or dividend-focused funds. This strategy can help balance growth and income needs, aligning the portfolio with specific financial goals and cash flow requirements.

Ongoing product costs Info

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

The portfolio benefits from a low total expense ratio (TER) of 0.03%, minimizing costs and maximizing net returns. Low fees are advantageous as they compound over time, enhancing long-term growth. While cost efficiency is important, it's equally crucial to ensure that the portfolio's asset allocation aligns with investment objectives. While keeping costs low, consider evaluating the portfolio's diversification and risk profile to ensure it meets your financial goals effectively.

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