A growth-focused portfolio with a heavy U.S. market tilt and low diversification

Report created on Dec 16, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

This portfolio is composed primarily of three ETFs, with Vanguard S&P 500 ETF and Vanguard U.S. Value Factor making up over 92% of the holdings. This concentration indicates a strong focus on large-cap U.S. equities. Such a structure can benefit from the historical stability and growth of the U.S. market. However, the lack of diversification across different asset classes may expose the portfolio to higher risks during market downturns. To mitigate this, consider diversifying into other asset classes like bonds or international equities for better risk management.

Growth Info

Historically, the portfolio has shown a strong compound annual growth rate (CAGR) of 14.34%, reflecting robust returns over time. However, it experienced a significant maximum drawdown of -38.31%, indicating vulnerability during market corrections. This performance suggests that while the portfolio can generate substantial returns, it also carries considerable risk. To balance this, you might explore strategies to reduce volatility, such as diversifying into less correlated assets or incorporating more defensive sectors.

Projection Info

Forward projections using Monte Carlo simulations show a broad range of potential outcomes, with a median expected return of 590.29%. Monte Carlo simulations use historical data to predict future performance, but they can't guarantee outcomes as market conditions evolve. The high variance in potential returns underscores the importance of being prepared for a range of scenarios. To enhance predictability, consider adjusting the asset mix to include more stable investments or reviewing the portfolio periodically to align with changing market conditions.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily skewed towards stocks, with an allocation exceeding 100%, indicating a pure equity focus. While equities can offer high growth potential, they also come with increased volatility. This allocation may suit investors with a high-risk tolerance and a long-term horizon. To improve diversification, integrating different asset classes such as fixed income or real estate can help cushion against market swings and provide a more balanced risk-return profile.

Sectors Info

  • Technology
    23%
  • Financials
    18%
  • Consumer Discretionary
    12%
  • Health Care
    10%
  • Industrials
    9%
  • Energy
    8%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Basic Materials
    4%
  • Real Estate
    1%
  • Utilities
    1%

Sector-wise, the portfolio is concentrated in technology, financial services, and consumer cyclicals, which together account for over 50% of the holdings. This concentration can drive significant growth, especially in a booming economy, but it also increases sensitivity to sector-specific downturns. A more balanced sector allocation could mitigate this risk. Consider reallocating some investments towards underrepresented sectors like utilities or real estate to enhance stability and reduce sector-specific risk.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is predominantly focused on North America, with over 98% exposure. This heavy regional concentration can limit the benefits of global diversification, such as reducing volatility and capturing growth in emerging markets. To achieve a more balanced geographic exposure, consider including international equities, which can offer growth opportunities in different economic cycles and help hedge against regional market downturns.

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 configuration can be optimized along the Efficient Frontier to achieve a better risk-return ratio. Optimization involves adjusting the asset allocation to maximize expected returns for a given level of risk. While the optimal portfolio suggests a higher expected return of 20.69%, it comes with increased risk. To strike a balance, consider incremental adjustments that enhance efficiency without significantly altering the portfolio's risk profile.

Dividends Info

  • Invesco QQQ Trust 0.60%
  • Vanguard U.S. Value Factor 2.30%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.66%

The portfolio's overall dividend yield stands at 1.66%, with contributions from each ETF. Dividends can provide a steady income stream and contribute to total returns, especially in volatile markets. While the current yield is modest, reinvesting dividends can enhance compound growth over time. If income generation is a priority, consider increasing exposure to higher-yielding assets or dividend-focused funds to boost the portfolio's yield.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • Vanguard U.S. Value Factor 0.13%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.09%

The portfolio's total expense ratio (TER) is relatively low at 0.09%, which is beneficial for long-term returns as costs can significantly erode gains over time. Keeping expenses minimal is crucial for maximizing net returns. Regularly review the portfolio's cost structure and consider switching to lower-cost alternatives if available. This approach can improve net returns without altering the portfolio's risk profile.

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