High-growth US-focused portfolio with low diversification and moderate risk

Risk profile

  • Secure
    Speculative

The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.

Diversification profile

  • Focused
    Diversified

The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.

What type of investor this portfolio is suitable for

Growth Investors

This portfolio suits a growth-oriented investor with a moderate to high risk tolerance and a long-term horizon. It emphasizes capital appreciation through U.S. equities, making it ideal for those seeking significant growth potential. However, the lack of diversification suggests that the investor should be comfortable with market volatility and willing to withstand potential downturns for higher returns. This approach is best for individuals focusing on wealth accumulation over time.

Positions

  • Avantis® U.S. Small Cap Value ETF
    AVUV - US0250728773
    25.00%
  • Schwab U.S. Large-Cap Growth ETF
    SCHG - US8085243009
    25.00%
  • Vanguard Mid-Cap Index Fund ETF Shares
    VO - US9229086296
    25.00%
  • Vanguard Total Stock Market Index Fund ETF Shares
    VTI - US9229087690
    25.00%

The portfolio consists of four ETFs, each contributing 25% to the overall allocation. This equal distribution among small-cap, large-cap, mid-cap, and total market ETFs provides a balanced exposure to the U.S. equity market. However, the lack of diversification across asset classes and regions may expose the portfolio to sector-specific risks. A more diversified portfolio typically includes a mix of asset classes such as bonds, real estate, or international equities to mitigate risk and enhance stability.

Growth Info

Historically, the portfolio has demonstrated a strong CAGR of 17.4%, indicating robust growth over time. However, the maximum drawdown of -38.01% suggests significant volatility, which can be concerning for risk-averse investors. Comparing this performance to common benchmarks, the portfolio has outperformed in terms of growth but with higher risk. It's important to remember that past performance is not a guarantee of future results, and the portfolio's volatility should be carefully considered.

Projection Info

The Monte Carlo simulation, which uses historical data to predict future outcomes, shows a wide range of potential end values for the portfolio. With a median return of 659.58% and a high probability of positive returns, the outlook is optimistic. However, the 5th percentile value of 52.3% highlights potential downside risks. Simulations provide a range of outcomes but rely on past data, which may not fully capture future market conditions. Thus, while projections are promising, they should be interpreted with caution.

Asset classes

  • Stocks
    100%
  • Cash
    0%

The portfolio is heavily concentrated in stocks, with over 99% allocation, and a negligible cash position. This single asset class focus can lead to higher returns but also increases vulnerability to market downturns. Diversification across asset classes, such as including bonds or real estate, can help balance risk and improve long-term stability. A typical benchmark might have a more balanced allocation, with a mix of equities and fixed income to cushion against volatility.

Sectors

  • Technology
    26%
  • Financials
    16%
  • Industrials
    12%
  • Consumer Discretionary
    12%
  • Health Care
    8%
  • Telecommunications
    7%
  • Energy
    6%
  • Consumer Staples
    4%
  • Basic Materials
    4%
  • Real Estate
    3%
  • Utilities
    3%

Sector allocation is skewed towards technology, which makes up nearly 26% of the portfolio. While this sector has driven significant growth, it also introduces higher volatility, especially in rising interest rate environments. A more balanced sector allocation could reduce risk and enhance diversification. Comparing this to benchmark indices, which often have a more even sector distribution, highlights the need for potential rebalancing to mitigate sector-specific risks.

Regions

  • North America
    99%
  • Europe Developed
    0%
  • Latin America
    0%
  • Asia Emerging
    0%
  • Asia Developed
    0%
  • Africa/Middle East
    0%

The portfolio is overwhelmingly focused on North American equities, with over 99% allocation. This lack of geographic diversification may limit exposure to growth opportunities in other regions and increase vulnerability to U.S. market-specific risks. A more globally diversified portfolio, aligned with common benchmarks, often includes a mix of developed and emerging markets to capture broader economic growth and reduce regional risk.

Redundant positions

  • Vanguard Total Stock Market Index Fund ETF Shares
    Vanguard Mid-Cap Index Fund ETF Shares
    High correlation

The portfolio includes highly correlated ETFs, particularly the Vanguard Total Stock Market and Mid-Cap Index Funds. High correlation means these assets tend to move together, which can limit diversification benefits. To enhance diversification, consider replacing one of these with an asset that has a lower correlation to the rest of the portfolio. This adjustment can help manage risk by ensuring that not all investments react the same way to market changes.

Dividends

  • Avantis® U.S. Small Cap Value ETF 1.60%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard Mid-Cap Index Fund ETF Shares 1.50%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Weighted yield (per year) 1.18%

The portfolio's overall dividend yield is 1.18%, which provides a modest income stream. This yield is driven by the small-cap and mid-cap ETFs, which typically offer higher dividends. While dividend income can be beneficial, especially in volatile markets, it's important to balance yield with growth potential. Investors seeking income might consider increasing exposure to higher-yielding assets, while those focused on growth may prioritize capital appreciation.

Ongoing product costs

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Vanguard Mid-Cap Index Fund ETF Shares 0.04%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.09%

With a Total Expense Ratio (TER) of 0.09%, the portfolio is cost-efficient, minimizing the drag on returns. Lower costs are beneficial for long-term performance, as they compound over time. It's worth noting that the Schwab and Vanguard ETFs in the portfolio have particularly low expense ratios, which is a positive alignment with best practices. Maintaining a focus on cost-effective investments can enhance net returns and support financial goals.

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.

The portfolio could benefit from optimization using the Efficient Frontier, which seeks the best risk-return balance based on current holdings. However, before optimizing, addressing the high correlation between assets is crucial. By diversifying and adjusting allocations, the portfolio can achieve a more efficient risk-return ratio. Remember, optimization focuses on the current assets and may not address diversification goals, so it's important to consider the broader investment strategy.

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