A predominantly large-cap US-focused portfolio with low diversification and moderate risk

Report created on Jan 28, 2025

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 77% invested in the Vanguard 500 Index Fund. This fund primarily tracks the S&P 500, which means the portfolio is significantly aligned with the US stock market. The remaining allocations are to the Vanguard Value Index Fund and Vanguard Small-Cap Index Fund, adding some diversity in investment style and company size. Compared to a balanced benchmark, this portfolio has a lower diversification score, indicating potential vulnerability to market swings. To enhance diversification, consider adding international or alternative asset classes to mitigate risk.

Growth Info

Historically, the portfolio has performed well, with a Compound Annual Growth Rate (CAGR) of 13.69%. This indicates strong growth compared to typical benchmarks. However, the portfolio has experienced a maximum drawdown of -34.79%, reflecting significant volatility. The concentration in large-cap US stocks contributed to both high returns and high risk. While past performance is impressive, remember that it doesn't guarantee future results. To manage potential downturns, consider strategies like rebalancing or adding more defensive assets.

Projection Info

The Monte Carlo simulation, which uses historical data to predict future outcomes, suggests a wide range of potential future returns. The median outcome projects a 369.5% increase, with a high likelihood of positive returns, as 988 out of 1,000 simulations were favorable. However, the 5th percentile shows a potential 51.3% gain, highlighting downside risk. These projections emphasize the importance of maintaining flexibility and readiness to adjust the portfolio as market conditions evolve. Regularly reviewing asset allocation and risk tolerance is crucial for staying on course.

Asset classes Info

  • Stocks
    100%

The portfolio's allocation is entirely in stocks, with no exposure to bonds or cash. This lack of asset class diversity can lead to increased volatility, especially during market downturns. While stocks can offer higher returns over the long term, incorporating bonds could provide stability and income. A more balanced asset allocation might include fixed-income securities, which can cushion against equity market fluctuations and align with a balanced risk profile. Consider diversifying into different asset classes to enhance resilience against market volatility.

Sectors Info

  • Technology
    29%
  • Financials
    15%
  • Health Care
    11%
  • Consumer Discretionary
    11%
  • Industrials
    9%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Energy
    4%
  • Utilities
    3%
  • Real Estate
    3%
  • Basic Materials
    2%

The portfolio is heavily weighted towards the technology sector, accounting for 29% of the total allocation. This concentration could lead to increased volatility, especially during periods of regulatory scrutiny or technological disruptions. The financial services and healthcare sectors also hold significant positions, providing some balance. However, diversifying further into sectors like consumer defensive or utilities could reduce risk. Aligning sector allocations more closely with a diversified benchmark can help manage sector-specific risks and potentially stabilize returns.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is almost entirely invested in North America, with 99% exposure. This regional concentration poses risks related to economic downturns or policy changes in the US. Compared to common benchmarks, this lack of international exposure limits diversification benefits. Expanding into developed and emerging markets could provide growth opportunities and reduce reliance on the US economy. Consider incorporating international funds to achieve a more balanced geographic distribution and mitigate regional risks.

Market capitalization Info

  • Mega-cap
    39%
  • Large-cap
    34%
  • Mid-cap
    21%
  • Small-cap
    6%
  • Micro-cap
    1%

The portfolio leans heavily towards mega-cap and big-cap stocks, which make up 73% of the total allocation. While these companies offer stability and established market positions, they may limit growth potential compared to smaller companies. The small and micro-cap exposure is minimal, which could reduce the portfolio's ability to capitalize on emerging growth opportunities. Balancing market capitalization exposure by increasing allocations to mid-cap and small-cap stocks could enhance growth potential and diversify 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's current composition could be optimized using the Efficient Frontier, which seeks the best possible risk-return ratio by adjusting asset allocations. This approach focuses on maximizing returns for a given level of risk. However, optimization is limited to the existing assets and their allocations. To achieve true efficiency, consider incorporating a broader range of asset classes and regions. Regularly reassessing the portfolio's risk-return profile can help maintain alignment with investment goals and market conditions.

Dividends Info

  • VANGUARD 500 INDEX FUND ADMIRAL SHARES 1.20%
  • VANGUARD SMALL-CAP INDEX FUND ADMIRAL SHARES 1.30%
  • VANGUARD VALUE INDEX FUND ADMIRAL SHARES 2.20%
  • Weighted yield (per year) 1.35%

The portfolio's dividend yield is 1.35%, which provides a modest income stream. The Vanguard Value Index Fund, with a yield of 2.20%, contributes significantly to this income. For investors seeking income, dividends can be an important component of total returns. However, the focus on growth-oriented funds like the Vanguard 500 Index Fund might limit dividend income. To enhance income potential, consider incorporating high-dividend funds or stocks, which can provide a more substantial income stream alongside capital appreciation.

Ongoing product costs Info

  • VANGUARD 500 INDEX FUND ADMIRAL SHARES 0.04%
  • VANGUARD SMALL-CAP INDEX FUND ADMIRAL SHARES 0.05%
  • VANGUARD VALUE INDEX FUND ADMIRAL SHARES 0.05%
  • Weighted costs total (per year) 0.04%

The portfolio benefits from low costs, with a Total Expense Ratio (TER) of 0.04%. This is impressively low and supports better long-term performance by minimizing fees that can erode returns. Low costs are a significant advantage, as they allow more of the portfolio's returns to be retained. Maintaining this cost efficiency is beneficial, but always ensure that low costs do not compromise diversification or investment quality. Regularly reviewing fund expenses can help sustain this advantage.

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