A growth-oriented portfolio with high concentration in US equities and low diversification

Report created on Jan 4, 2025

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 concentrated in the Vanguard S&P 500 ETF, which makes up 84.58% of the total allocation. This gives it a strong focus on US large-cap stocks, typical of an S&P 500 index. While this may provide stability and exposure to established companies, it limits diversification. The rest of the portfolio includes a mix of growth-focused ETFs and a small percentage in individual stocks. This composition suggests a growth-oriented approach but lacks balance across different asset types, which could expose the portfolio to higher volatility in downturns.

Growth Info

Historically, the portfolio has demonstrated a strong Compound Annual Growth Rate (CAGR) of 15.39%, indicating robust growth over time. However, it also has a significant maximum drawdown of -33.54%, highlighting potential vulnerability during market downturns. This performance suggests that while the portfolio has benefited from strong market conditions, it could face challenges in more volatile environments. Comparing this to a diversified benchmark, the portfolio's performance is impressive but comes with higher risk, underscoring the importance of considering risk management strategies.

Projection Info

Forward projections using Monte Carlo simulations indicate a wide range of potential outcomes, with a median return of 2,040.04%. Monte Carlo simulations use historical data to predict future performance, but it's important to note that these are not guarantees. The simulations show a high probability of positive returns, with 997 out of 1,000 simulations yielding gains. However, the variability in outcomes suggests that while the portfolio could perform well, it also carries a risk of significant fluctuations, emphasizing the need for careful risk assessment.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly allocated to stocks, with 99.92% in equities and a negligible amount in cash. This heavy equity allocation aligns with a growth strategy but lacks the diversification benefits that other asset classes, such as bonds or real estate, could provide. A more balanced allocation might help mitigate risk and stabilize returns, especially during market volatility. Comparing to benchmark norms, this portfolio's lack of diversification could be a concern for investors seeking a more balanced risk profile.

Sectors Info

  • Technology
    36%
  • Financials
    12%
  • Consumer Discretionary
    10%
  • Health Care
    10%
  • Telecommunications
    10%
  • Industrials
    7%
  • Consumer Staples
    5%
  • Energy
    3%
  • Real Estate
    3%
  • Utilities
    2%
  • Basic Materials
    2%

The portfolio is notably concentrated in the technology sector, which comprises 36.32% of the total allocation. While this sector has driven significant growth in recent years, it also introduces higher volatility, particularly during interest rate changes or market corrections. Other sectors like financial services and consumer cyclicals also have notable allocations. However, the concentration in a few sectors could expose the portfolio to sector-specific risks, suggesting a need for more balanced sector diversification to mitigate potential downturns.

Regions Info

  • North America
    99%

Geographically, the portfolio is heavily skewed towards North America, with 99.49% of assets allocated to this region. This concentration may limit exposure to growth opportunities in other parts of the world, such as emerging markets. While US equities have performed well historically, geographic diversification can help reduce regional risks and tap into global growth trends. Compared to common benchmarks, this portfolio's geographic allocation is significantly under-diversified, which could be a concern for those seeking global exposure.

Redundant positions Info

  • Vanguard Growth Index Fund ETF Shares
    Vanguard S&P 500 ETF
    High correlation

The portfolio has highly correlated assets, particularly between the Vanguard Growth Index Fund ETF Shares and the Vanguard S&P 500 ETF. High correlation means these assets tend to move together, reducing the diversification benefits. In times of market stress, this could lead to larger drawdowns, as the lack of diversification may not protect against sector or market-wide declines. To improve diversification, consider introducing assets with low correlation to the existing holdings, which can help smooth returns and reduce 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 suggests room for optimization, particularly in terms of risk versus return. By removing highly correlated assets and considering the Efficient Frontier, the portfolio could achieve a more optimal risk-return balance. The Efficient Frontier is a concept that helps identify the best possible risk-return ratio given a set of assets. While it won't necessarily enhance diversification, optimizing along the frontier can help ensure that the portfolio is achieving the best possible returns for its level of risk.

Dividends Info

  • Apple Inc 0.40%
  • Alphabet Inc Class A 0.30%
  • Lockheed Martin Corporation 2.60%
  • Microsoft Corporation 0.70%
  • Realty Income Corp 5.40%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Weighted yield (per year) 1.13%

Dividend yields in the portfolio are modest, with a total yield of 1.13%. While dividends can provide a steady income stream, this portfolio's focus on growth stocks means it prioritizes capital appreciation over income. For investors seeking income, the portfolio's dividend yield might be considered low. However, for those focused on growth, this is not necessarily a drawback. The inclusion of high-dividend stocks like Realty Income Corp helps balance the portfolio slightly, but overall, the yield remains secondary to growth potential.

Ongoing product costs Info

  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Weighted costs total (per year) 0.03%

The portfolio benefits from impressively low costs, with a Total Expense Ratio (TER) of just 0.03%. This cost efficiency is a strong positive, as lower fees can significantly enhance long-term returns by minimizing the drag on performance. Compared to industry averages, these costs are exceptionally low, which is advantageous for compounding growth over time. Keeping costs minimal is crucial in maximizing net returns, and this aspect of the portfolio is well-aligned with best practices for cost management.

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