Moderately Diversified Growth Portfolio with Strong Technology Focus and High Correlation Risks

Report created on Jul 8, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio is composed of five ETFs, with a heavy emphasis on the Vanguard Total Stock Market Index Fund ETF Shares, which makes up 70% of the portfolio. The remaining positions include Schwab U.S. Large-Cap Growth ETF, Vanguard Total International Stock Index Fund ETF Shares, iShares Core S&P Small-Cap ETF, and Invesco PHLX Semiconductor ETF. This composition reflects a strong bias towards U.S. equities and technology sectors. While the portfolio is moderately diversified, it leans heavily towards growth-oriented investments, which can be beneficial for long-term capital appreciation but may expose the portfolio to higher volatility.

Growth Info

Historically, the portfolio has demonstrated a commendable compound annual growth rate (CAGR) of 11.13%, indicating strong performance over time. The maximum drawdown of -27.53% suggests that the portfolio has experienced significant declines during market downturns. This level of drawdown is typical for a growth-focused portfolio, which tends to be more volatile. The portfolio's ability to recover and achieve high returns is a positive aspect, but it is crucial to be prepared for potential fluctuations. Maintaining a long-term perspective can help mitigate the impact of short-term market volatility.

Projection Info

A Monte Carlo simulation, which uses random sampling to predict future outcomes, was conducted with 1,000 simulations. Assuming a hypothetical initial investment, the simulation shows a wide range of possible outcomes, with the 5th percentile at -26.04% and the 67th percentile at 380.94%. The median projection is a 214.26% increase. These projections highlight the potential for significant growth, but also underscore the risk of substantial losses. It's essential to consider these risks and align them with personal investment goals and risk tolerance to make informed decisions about the portfolio's future.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly invested in stocks, with 99.68% of the assets allocated to equities. This high concentration in one asset class suggests a focus on capital growth, but it also exposes the portfolio to market volatility. While stocks offer the potential for higher returns, they can also lead to significant losses during downturns. Diversifying into other asset classes, such as bonds or real estate, could help reduce risk and provide a more balanced approach. However, given the current composition, the portfolio is well-suited for an investor with a higher risk tolerance and a long-term investment horizon.

Sectors Info

  • Technology
    33%
  • Financials
    13%
  • Health Care
    11%
  • Consumer Discretionary
    10%
  • Industrials
    9%
  • Telecommunications
    8%
  • Consumer Staples
    5%
  • Energy
    3%
  • Real Estate
    3%
  • Basic Materials
    3%
  • Utilities
    2%

The portfolio is heavily weighted towards the technology sector, which accounts for 33.26% of the total allocation. Other significant sectors include financial services, healthcare, and consumer cyclicals. This sector allocation reflects a focus on growth industries, which can drive substantial returns but may also introduce sector-specific risks. A heavy reliance on technology could lead to increased volatility if the sector experiences a downturn. To mitigate these risks, consider rebalancing the portfolio to achieve a more even distribution across various sectors, ensuring that no single sector dominates the overall allocation.

Regions Info

  • North America
    90%
  • Europe Developed
    5%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    1%
  • Australasia
    1%

Geographically, the portfolio is primarily concentrated in North America, with 89.76% of assets allocated to this region. The remaining exposure is spread across Europe, Asia, and other regions, but in much smaller proportions. This geographic concentration reflects a strong bias towards the U.S. market, which can be beneficial during periods of economic growth but may also expose the portfolio to regional risks. Expanding the geographic diversification could help mitigate these risks and provide exposure to different economic cycles and growth opportunities around the world, enhancing the portfolio's overall resilience.

Redundant positions Info

  • Vanguard Total Stock Market Index Fund ETF Shares
    Schwab U.S. Large-Cap Growth ETF
    High correlation

The portfolio exhibits high correlations among certain assets, particularly between the Vanguard Total Stock Market Index Fund ETF Shares and the Schwab U.S. Large-Cap Growth ETF. This correlation suggests that these assets tend to move in the same direction, which can amplify the portfolio's volatility. While high correlations can lead to higher returns during bull markets, they also increase the risk of significant losses during downturns. To reduce these risks, consider diversifying the portfolio with assets that have lower correlations, which can help smooth out returns and provide more stability over time.

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 optimization potential is limited due to high correlations among certain assets, which can amplify risk. Instead of optimizing, consider focusing on diversification to reduce volatility. Moving along the efficient frontier can help achieve a riskier or more conservative portfolio. For a riskier approach, increase exposure to high-growth sectors, while a more conservative strategy might involve adding bonds or other low-risk assets. However, given the current structure, the portfolio aligns well with a growth strategy, and adjustments should reflect the investor's risk tolerance and financial goals.

Dividends Info

  • iShares Core S&P Small-Cap ETF 1.20%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Invesco PHLX Semiconductor ETF 0.70%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.34%

The portfolio's overall dividend yield is 1.34%, with contributions from various ETFs. The Vanguard Total International Stock Index Fund ETF Shares offers the highest yield at 3.0%, while other ETFs provide lower yields. This yield level is relatively modest, reflecting the portfolio's growth-oriented focus. While dividends can provide a steady income stream, the primary goal of this portfolio appears to be capital appreciation. For investors seeking income, consider increasing exposure to higher-yielding assets. However, for those focused on growth, the current yield may be sufficient, with reinvested dividends contributing to long-term wealth accumulation.

Ongoing product costs Info

  • iShares Core S&P Small-Cap ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Invesco PHLX Semiconductor ETF 0.19%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.05%

The portfolio's total expense ratio (TER) is 0.05%, which is quite low and indicates cost-effective management. The individual ETFs have varying expense ratios, with the Schwab U.S. Large-Cap Growth ETF being the most cost-effective at 0.04%, and the Invesco PHLX Semiconductor ETF having the highest at 0.19%. Keeping costs low is essential for maximizing returns over time, as high fees can erode gains. The portfolio's current cost structure is favorable for long-term growth. Continuously monitoring and managing expenses can help preserve returns and ensure that investment costs remain aligned with financial goals.

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