A growth-focused portfolio with high U.S. exposure and limited diversification across sectors and geography

Report created on Dec 8, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

The portfolio is heavily weighted towards U.S. equities, with a significant portion allocated to large-cap growth and broad market ETFs. This composition suggests a focus on capital appreciation through established companies. While such a strategy can yield high returns, it also exposes the portfolio to market volatility. Diversification is limited, with minimal investments in international and small-cap stocks. To enhance stability and reduce risk, consider incorporating a broader range of asset classes, such as bonds or international equities, which can provide balance and potential downside protection during market downturns.

Growth Info

Historically, the portfolio has delivered strong returns, with a compound annual growth rate (CAGR) of 16.08%. However, it has also experienced significant drawdowns, such as a maximum drawdown of 34%. This performance indicates a high-risk, high-reward profile typical of growth-oriented portfolios. While past performance can offer insights, it does not guarantee future results. It's important to consider this volatility when planning for future financial goals. To mitigate risk, you might explore diversifying across different asset classes or sectors to smooth out potential downturns.

Projection Info

Using Monte Carlo simulations, the portfolio's future performance is projected with various potential outcomes. The simulations, based on historical data, show a wide range of possible returns, from a 5th percentile return of 62.33% to a 67th percentile return of 599.07%. These projections underscore the uncertainty and variability inherent in investing. While they provide a statistical framework for understanding potential outcomes, they are not predictions. Diversifying the portfolio could help achieve more consistent returns and align with your risk tolerance and investment goals.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly concentrated in stocks, accounting for nearly 100% of its allocation. This heavy reliance on equities suggests a focus on growth but also increases exposure to market volatility. The minimal presence of bonds and other asset classes limits the portfolio's ability to cushion against market fluctuations. A more balanced allocation could enhance diversification and reduce risk. Consider incorporating fixed income or alternative investments to provide stability and income, especially if market conditions become unfavorable.

Sectors Info

  • Technology
    34%
  • Financials
    12%
  • Consumer Discretionary
    12%
  • Health Care
    11%
  • Telecommunications
    9%
  • Industrials
    8%
  • Consumer Staples
    5%
  • Energy
    4%
  • Basic Materials
    2%
  • Real Estate
    2%
  • Utilities
    1%

Sector allocation reveals a heavy concentration in technology, which comprises over a third of the portfolio. While this can drive growth, it also increases vulnerability to sector-specific risks, such as regulatory changes or market saturation. Other sectors like financial services, consumer cyclicals, and healthcare are represented but with less impact. To mitigate sector risk, consider diversifying across a broader range of industries. This approach can help stabilize returns and reduce dependency on any single sector's performance.

Regions Info

  • North America
    97%
  • Europe Developed
    2%
  • Japan
    1%

Geographically, the portfolio is predominantly focused on North America, with over 97% of assets allocated to this region. This concentration limits exposure to global markets and the potential benefits of geographic diversification. Such a strategy can lead to missed opportunities in emerging and developed markets outside the U.S. To enhance global diversification, consider increasing allocations to international equities. This could provide exposure to different economic cycles and growth opportunities, potentially improving risk-adjusted returns.

Redundant positions Info

  • Schwab U.S. Mid-Cap ETF
    Schwab U.S. Small-Cap ETF
    High correlation
  • Schwab U.S. Broad Market ETF
    Schwab U.S. Large-Cap Growth ETF
    High correlation

The portfolio contains highly correlated assets, particularly between the Schwab U.S. Mid-Cap ETF and the Schwab U.S. Small-Cap ETF, as well as the Schwab U.S. Broad Market ETF and the Schwab U.S. Large-Cap Growth ETF. High correlation means these assets tend to move in tandem, reducing diversification benefits. To manage risk effectively, consider replacing some of these correlated assets with others that have lower correlations. This strategy can help smooth out volatility and improve the overall risk-return profile of the portfolio.

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 potentially be optimized using the Efficient Frontier, which seeks to achieve the best possible risk-return ratio with the current set of assets. This involves adjusting the allocation between existing assets to find a more efficient balance. Before optimizing, consider addressing the portfolio's high correlation and limited diversification. By introducing less correlated and more diverse assets, the portfolio might achieve a better risk-return trade-off. This approach can help align the portfolio more closely with your investment objectives and risk tolerance.

Dividends Info

  • Schwab U.S. Small-Cap ETF 1.40%
  • Schwab U.S. Broad Market ETF 0.80%
  • Schwab U.S. Dividend Equity ETF 2.50%
  • Schwab International Equity ETF 0.90%
  • Schwab U.S. Large-Cap Growth ETF 0.30%
  • Schwab U.S. Mid-Cap ETF 1.50%
  • Weighted yield (per year) 0.83%

The portfolio's overall dividend yield is relatively low at 0.83%, with the highest yield coming from the Schwab U.S. Dividend Equity ETF at 2.5%. While dividend income can provide a steady cash flow, this portfolio prioritizes growth over income. For investors seeking higher income, consider increasing exposure to dividend-focused assets. This could involve reallocating portions of the portfolio to higher-yielding stocks or funds, which can provide additional income and potentially enhance total returns over time.

Ongoing product costs Info

  • Schwab U.S. Small-Cap ETF 0.04%
  • Schwab U.S. Broad Market ETF 0.03%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab International Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Schwab U.S. Mid-Cap ETF 0.04%
  • Weighted costs total (per year) 0.04%

The portfolio benefits from low costs, with a total expense ratio (TER) of just 0.04%. This cost efficiency is advantageous, as lower fees can significantly enhance long-term returns by reducing the drag on performance. Maintaining a focus on low-cost investments is a sound strategy. However, it's also important to ensure that low costs do not come at the expense of diversification or potential returns. Regularly reviewing and optimizing the cost structure can help maximize the portfolio's performance while maintaining a balanced risk profile.

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