A US-focused portfolio with strong growth potential but limited diversification and high correlation

Report created on Jan 15, 2025

Risk profile Info

4/7
Balanced
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Diversification profile Info

2/5
Low Diversity
← Less diversification More diversification →

Positions

The portfolio is heavily weighted towards equities, with 99.72% in stock ETFs and minimal cash holdings. This composition suggests a focus on growth, typical of a balanced risk profile. However, the low diversification score indicates a need to broaden asset types to potentially include bonds or alternative investments. Diversifying beyond equities can help mitigate risk, especially in volatile markets, and align more closely with common balanced benchmark compositions.

Growth Info

Historically, the portfolio has performed well, with a Compound Annual Growth Rate (CAGR) of 13.83%. This impressive growth outpaces many benchmarks, reflecting strong stock market performance over the period. However, the portfolio also experienced a significant maximum drawdown of -27.38%, highlighting its vulnerability during downturns. While past performance is not indicative of future results, understanding these trends can guide adjustments to balance risk and return more effectively.

Projection Info

The Monte Carlo simulation, which uses historical data to predict future outcomes, shows a median potential growth of 443.35%. While this suggests robust future performance, it is crucial to remember that simulations are hypothetical and do not guarantee results. The wide range of outcomes, from 65.28% to 642.09%, underscores the inherent uncertainty in forecasting. Regularly reviewing and adjusting the portfolio can help navigate these potential scenarios.

Asset classes Info

  • Stocks
    100%

The portfolio's asset allocation is almost entirely in stocks, with negligible cash holdings. This heavy reliance on equities limits diversification benefits and exposes the portfolio to stock market volatility. Balanced portfolios typically include bonds or other asset classes to offset this risk. Consider integrating fixed income or alternative investments to enhance stability and align with more diversified benchmarks.

Sectors Info

  • Technology
    31%
  • Consumer Discretionary
    11%
  • Financials
    11%
  • Industrials
    10%
  • Health Care
    10%
  • Telecommunications
    8%
  • Consumer Staples
    5%
  • Real Estate
    4%
  • Utilities
    4%
  • Energy
    3%
  • Basic Materials
    3%

The portfolio has a notable concentration in the technology sector, comprising 30.81% of its assets. While tech stocks have driven substantial growth, they also introduce higher volatility, especially during interest rate hikes. Balancing sector exposure by increasing allocations in less represented areas, such as utilities or consumer defensives, can mitigate risk and offer more stable returns, aligning with broader sector benchmarks.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is heavily skewed towards North America, with 98.99% exposure. This concentration reduces global diversification and may miss opportunities in emerging and developed markets abroad. Expanding geographic exposure can reduce regional risk and capture growth in other economies. Consider funds with broader international holdings to better balance geographic risks and returns.

Redundant positions Info

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

The portfolio's assets are highly correlated, particularly among the Vanguard ETFs, which limits diversification benefits. Highly correlated assets tend to move in tandem, which can amplify losses during market downturns. Reducing overlap by introducing less correlated asset types or sectors can enhance diversification and improve risk management, aligning the portfolio more closely with diversification best practices.

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.

Before considering optimization using the Efficient Frontier, it's crucial to address the portfolio's high correlation and limited diversification. The Efficient Frontier identifies the best risk-return ratio based on current assets. However, reducing asset correlation and increasing diversification can enhance this optimization process, leading to a more balanced and efficient portfolio.

Dividends Info

  • Invesco NASDAQ 100 ETF 0.60%
  • Vanguard Small-Cap Index Fund ETF Shares 1.30%
  • Vanguard Mid-Cap Index Fund ETF Shares 1.80%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 1.26%

With a total dividend yield of 1.26%, the portfolio provides moderate income through dividends. While this yield is a useful supplement to capital gains, it may not be sufficient for income-focused investors. Increasing exposure to higher-yielding assets or dividend-focused funds can enhance income without significantly altering the portfolio's risk profile, especially for those seeking regular income streams.

Ongoing product costs Info

  • Invesco NASDAQ 100 ETF 0.15%
  • Vanguard Small-Cap Index Fund ETF Shares 0.05%
  • Vanguard Mid-Cap Index Fund ETF Shares 0.04%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.06%

The portfolio benefits from impressively low costs, with a total expense ratio (TER) of just 0.06%. This cost efficiency supports better long-term performance, as lower fees mean more returns are retained. Maintaining this low-cost structure is advantageous, but it's important to regularly review and compare fund fees to ensure ongoing cost-effectiveness, especially when considering new investments.

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