A growth-focused portfolio with heavy U.S. exposure but limited diversification
Report created on Apr 3, 2025Risk profile
5/7
Diversification profile
2/5
Positions
-
VO Vanguard S&P 500 ETF
VOO - US9229083632 40.00% -
VT Vanguard Total Stock Market Index Fund ETF Shares
VTI - US9229087690 28.00% -
SP SPDR® Portfolio S&P 500 Growth ETF
SPYG - US78464A4094 22.00% -
AV Avantis® U.S. Small Cap Value ETF
AVUV - US0250728773 10.00%
The portfolio is heavily weighted towards U.S. equities with a significant allocation to large-cap stocks through ETFs like the Vanguard S&P 500 ETF and Vanguard Total Stock Market Index Fund ETF Shares. These two make up 68% of the portfolio, reflecting a strong bias towards established U.S. companies. This composition aligns with a growth-focused strategy but lacks diversification, as it primarily concentrates on U.S. large-cap equities. For better risk management, diversifying into international markets or other asset classes could be beneficial.
Growth
Historically, the portfolio has delivered impressive returns, with a Compound Annual Growth Rate (CAGR) of 15.73%. This performance indicates strong growth potential, especially during bullish market phases. However, the maximum drawdown of -34.82% highlights vulnerability during market downturns. Comparing this to a benchmark like the S&P 500, the portfolio's performance is competitive but could benefit from reduced volatility. Diversifying across asset classes or geographic regions may help mitigate the impact of future drawdowns.
Projection
The Monte Carlo simulation, which uses historical data to project potential outcomes, suggests a wide range of future returns. With simulations indicating a 5th percentile return of 61% and a 67th percentile return of 915.5%, the portfolio shows potential for substantial growth. However, it's important to note that these projections are not guarantees. The high variance in outcomes underscores the need for diversification to manage risk and smooth returns across different market conditions.
Asset classes
- Stocks 100%
The portfolio is exclusively invested in stocks, with no allocation to bonds, cash, or alternative investments. This 100% equity exposure can drive high returns but also increases susceptibility to market volatility. A more balanced approach, incorporating fixed income or alternative assets, could enhance stability and reduce risk. Comparing to a diversified benchmark, the portfolio's single asset class focus may miss out on the benefits of reduced correlation and risk.
Sectors
- Technology 31%
- Financials 15%
- Consumer Discretionary 12%
- Telecommunications 10%
- Health Care 9%
- Industrials 9%
- Consumer Staples 5%
- Energy 4%
- Utilities 2%
- Basic Materials 2%
- Real Estate 2%
The portfolio is concentrated in the technology sector, which accounts for 31% of the allocation, followed by financial services and consumer cyclicals. Such concentration can lead to higher volatility, especially if tech experiences downturns due to regulatory changes or interest rate hikes. While this sector mix aligns with a growth strategy, it may benefit from a more balanced sector allocation. Diversifying into less correlated sectors could help stabilize returns and reduce sector-specific risks.
Regions
- North America 99%
With 99% of the portfolio allocated to North America, there's a significant geographic concentration. This U.S.-centric exposure limits diversification benefits and increases vulnerability to domestic economic fluctuations. Compared to global benchmarks, the lack of international diversification may hinder performance if U.S. markets underperform. Expanding into developed or emerging markets could enhance diversification, providing exposure to different economic cycles and growth opportunities.
Market capitalization
- Mega-cap 44%
- Large-cap 28%
- Mid-cap 15%
- Small-cap 7%
- Micro-cap 6%
The portfolio is predominantly invested in mega and big-cap stocks, which together constitute 72% of the allocation. This focus on larger companies can provide stability and steady growth, but it may limit exposure to the potential high returns of smaller, more dynamic companies. Including more small or micro-cap stocks can increase diversification and capture growth from emerging companies, albeit with higher volatility. Balancing market capitalization exposure could optimize risk-adjusted returns.
Redundant positions
-
High correlationVanguard Total Stock Market Index Fund ETF SharesVanguard S&P 500 ETFSPDR® Portfolio S&P 500 Growth ETF
The portfolio's assets are highly correlated, particularly the Vanguard Total Stock Market Index Fund ETF Shares, Vanguard S&P 500 ETF, and SPDR® Portfolio S&P 500 Growth ETF. This high correlation suggests limited diversification benefits, as these assets tend to move in tandem. During market downturns, such correlation can amplify losses. Reducing overlap by incorporating less correlated assets or exploring different asset classes could enhance diversification and mitigate 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 be optimized using the Efficient Frontier, which identifies the best risk-return ratio for a given set of assets. However, the current high correlation among assets limits diversification benefits. Adjusting allocations to include less correlated assets could improve efficiency. This optimization process focuses solely on the current assets and potential allocation changes, aiming to enhance the risk-return profile without necessarily diversifying into new asset classes or regions.
Dividends
- Avantis® U.S. Small Cap Value ETF 1.40%
- SPDR® Portfolio S&P 500 Growth ETF 0.70%
- Vanguard S&P 500 ETF 1.30%
- Vanguard Total Stock Market Index Fund ETF Shares 1.30%
- Weighted yield (per year) 1.18%
The portfolio's dividend yield is 1.18%, with contributions from all ETFs. While dividends provide a steady income stream, this yield is relatively modest for a growth-focused portfolio. The emphasis on growth stocks typically results in lower yields, as these companies often reinvest profits. For investors seeking income, incorporating higher-yielding assets could be an option. However, the current yield aligns with the portfolio's growth objective, emphasizing capital appreciation over income.
Ongoing product costs
- Avantis® U.S. Small Cap Value ETF 0.25%
- SPDR® Portfolio S&P 500 Growth ETF 0.04%
- Vanguard S&P 500 ETF 0.03%
- Vanguard Total Stock Market Index Fund ETF Shares 0.03%
- Weighted costs total (per year) 0.05%
The portfolio's total expense ratio (TER) is impressively low at 0.05%, supporting better long-term performance by minimizing costs. The low fees of the Vanguard and SPDR ETFs contribute significantly to this efficiency, allowing more of the investment returns to compound over time. Compared to industry averages, these costs are commendably low and align with best practices for cost-effective investing. Maintaining this cost structure is advantageous for maximizing net returns.
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