A concentrated US-focused portfolio with strong historic performance but limited diversification

Report created on Jan 1, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

The portfolio is heavily concentrated in U.S. large-cap equities, with over 85% invested in two S&P 500 ETFs. This composition aligns with a typical large-cap equity benchmark but lacks diversification across asset classes and geographies. While the Vanguard and iShares ETFs provide broad market exposure, the lack of diversity may limit potential returns and increase risk during market downturns. To enhance diversification, consider incorporating different asset classes, such as bonds or international equities, which can provide stability and growth potential.

Growth Info

Historically, the portfolio has performed well, achieving a Compound Annual Growth Rate (CAGR) of 14.21%, which is impressive. This growth rate indicates strong past performance, comparable to the broader market. However, the portfolio experienced a significant maximum drawdown of -33.73%, highlighting its vulnerability to market volatility. While past performance does not guarantee future success, understanding these trends can guide future strategic adjustments. To mitigate potential losses, consider diversifying into less correlated assets that can provide a buffer during market downturns.

Projection Info

Monte Carlo simulations, which use historical data to forecast potential outcomes, show optimistic forward projections for this portfolio. The median (50th percentile) simulation suggests a potential growth of 541.98%, indicating a strong future performance if historical trends continue. However, these projections are not guaranteed and should be interpreted cautiously. The reliance on historical data means that unexpected market shifts could lead to different outcomes. It may be beneficial to periodically review and adjust the portfolio in response to changing market conditions to maintain alignment with investment goals.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely allocated to stocks, with negligible cash holdings. This heavy equity weighting suggests a high-risk, high-reward strategy, typical for growth-oriented investors. While equities can offer substantial returns, they also introduce significant volatility. Diversifying into other asset classes, such as bonds or real estate, could reduce risk and provide more stability. By balancing the portfolio with a mix of asset classes, investors can potentially achieve a more consistent return profile while reducing exposure to market downturns.

Sectors Info

  • Technology
    33%
  • Financials
    13%
  • Health Care
    11%
  • Consumer Discretionary
    11%
  • Telecommunications
    9%
  • Industrials
    7%
  • Consumer Staples
    6%
  • Energy
    4%
  • Utilities
    2%
  • Real Estate
    2%
  • Basic Materials
    2%

The portfolio is heavily weighted towards the technology sector, comprising over 32% of the total allocation. This concentration aligns with recent market trends favoring tech stocks but introduces sector-specific risks, such as increased volatility during regulatory changes or interest rate hikes. While the portfolio benefits from growth in this sector, it may lack resilience against sector downturns. To mitigate this risk, consider reallocating some investments towards underrepresented sectors, such as utilities or consumer defensive stocks, which can provide stability and balance.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

The portfolio's geographic allocation is overwhelmingly focused on North America, with nearly 100% exposure. This lack of international diversification can limit opportunities for growth and expose the portfolio to region-specific risks. By incorporating more international equities, investors can access growth potential in emerging markets and developed economies outside North America. This geographic diversification can help mitigate regional economic downturns and provide a more balanced risk-reward profile, aligning with global market trends and opportunities.

Redundant positions Info

  • iShares Core S&P 500 ETF
    Schwab U.S. Large-Cap Growth ETF
    Vanguard S&P 500 ETF
    High correlation

The portfolio's assets are highly correlated, particularly among the S&P 500 ETFs and the Schwab U.S. Large-Cap Growth ETF. This correlation suggests that the portfolio may not be effectively diversified, as the assets tend to move in tandem. In times of market downturns, highly correlated assets can exacerbate losses. To improve diversification, consider introducing assets with lower correlation to the existing holdings, such as international equities or fixed-income securities. This approach can enhance risk management and provide more stable returns.

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 the best possible risk-return ratio. However, the presence of highly correlated assets limits diversification benefits. Before attempting optimization, consider reducing overlap by removing or replacing redundant assets. This step can enhance the portfolio's efficiency by distributing risk more effectively across different asset classes and sectors. Remember, optimization focuses on achieving the most favorable risk-return balance based on current assets and allocation changes, not necessarily diversification.

Dividends Info

  • iShares Core S&P 500 ETF 0.90%
  • Schwab U.S. Dividend Equity ETF 3.60%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.22%

The portfolio has a modest dividend yield of 1.22%, primarily driven by the Schwab U.S. Dividend Equity ETF, which offers a higher yield of 3.6%. Dividends can provide a steady income stream and contribute to total returns, especially during periods of market volatility. For investors seeking income, increasing allocation to dividend-focused assets could enhance yield. However, balancing growth and income is essential to maintain overall portfolio objectives. Consider whether the current dividend yield aligns with your financial goals and make adjustments as needed.

Ongoing product costs Info

  • iShares Core S&P 500 ETF 0.03%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.03%

The portfolio benefits from impressively low costs, with an overall Total Expense Ratio (TER) of 0.03%. Low costs are advantageous as they support better long-term performance by minimizing fees that can erode returns. This cost efficiency aligns well with best practices for portfolio management, ensuring that more of the investment returns are retained. To maintain this advantage, continue to monitor expense ratios and consider replacing higher-fee assets with cost-effective alternatives if they arise, ensuring that the portfolio remains competitive in terms of expenses.

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