A growth-focused portfolio with strong US bias and limited diversification across sectors

Report created on Dec 6, 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 equally divided among four ETFs, each holding 25% of the total investment. The focus is on small-cap and total stock market funds, with a tilt towards value investing. This composition implies a strategy focused on growth through small-cap and value stocks. Understanding the asset allocation is crucial as it determines the potential risk and return. A balanced approach across different asset types can mitigate risk. It may be beneficial to consider introducing other asset classes such as bonds or international stocks to enhance diversification and potentially stabilize returns.

Growth Info

Historically, this portfolio has delivered a compound annual growth rate (CAGR) of 12.05% with a maximum drawdown of -39.31%. This performance indicates strong growth potential but also highlights significant volatility. Past performance is a useful indicator but not a guarantee of future results. It is important to understand that historical data may not fully predict future outcomes due to changing market conditions. Therefore, while the growth rate is impressive, it is crucial to prepare for potential downturns by maintaining an appropriate risk profile.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was projected. The expected annualized return is 12.84%, with a 5th percentile outcome of 16.64% and a 67th percentile of 521.24%. Monte Carlo simulations use historical data to model potential future outcomes, but they are not foolproof predictions. They provide a range of possible scenarios, helping investors gauge potential risks and rewards. Consider using these projections to adjust your strategy, but remain flexible as market conditions evolve.

Asset classes Info

  • Stocks
    100%

The portfolio is predominantly composed of stocks, accounting for over 99% of the allocation, with a negligible cash position. This heavy reliance on equities suggests a strong growth orientation but also increases vulnerability to market fluctuations. Diversifying into other asset classes like bonds or real estate could help balance the portfolio and reduce risk. By incorporating a mix of asset types, you can potentially achieve a more stable return profile, especially during market downturns.

Sectors Info

  • Financials
    19%
  • Technology
    15%
  • Industrials
    15%
  • Health Care
    11%
  • Consumer Discretionary
    11%
  • Real Estate
    6%
  • Consumer Staples
    6%
  • Energy
    5%
  • Telecommunications
    4%
  • Basic Materials
    4%
  • Utilities
    4%

Sector allocation shows a concentration in financial services, technology, and industrials, which together make up nearly half the portfolio. While these sectors offer growth opportunities, they also expose the portfolio to sector-specific risks. A more balanced sector allocation can help mitigate these risks. Consider diversifying into underrepresented sectors such as utilities or consumer defensive, which may offer stability during economic downturns. This approach can help enhance the portfolio's resilience against sector-specific volatility.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

The portfolio is overwhelmingly concentrated in North America, with over 99% exposure. This geographic concentration limits the benefits of global diversification and exposes the portfolio to region-specific risks. Expanding geographic exposure can enhance diversification, potentially reducing risk and improving returns. Consider adding international equities from developed and emerging markets to capture growth opportunities beyond North America. This broader diversification can help mitigate risks associated with regional economic downturns.

Redundant positions Info

  • Vanguard Small-Cap Value Index Fund ETF Shares
    SPDR® Portfolio S&P 600 Small Cap ETF
    High correlation

Highly correlated assets, such as the Vanguard Small-Cap Value Index Fund ETF and the SPDR® Portfolio S&P 600 Small Cap ETF, indicate limited diversification benefits. When assets move together, the portfolio's risk is not effectively spread out. Reducing correlation by introducing non-correlated assets can enhance diversification. Consider replacing or reducing exposure to highly correlated assets with those that have low or negative correlation to existing holdings, thereby improving the portfolio's risk management.

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 can be optimized using the Efficient Frontier, aiming for a better risk-return ratio. The current portfolio has potential for improvement, with an optimized version expected to yield 13.86% returns at the same risk level. The Efficient Frontier helps identify the best possible allocation for maximum return given a specific risk level. To optimize, consider rebalancing the portfolio by reducing exposure to highly correlated assets and reallocating funds to less correlated, potentially higher-return investments.

Dividends Info

  • SPDR® Portfolio S&P 600 Small Cap ETF 1.70%
  • Vanguard Small-Cap Value Index Fund ETF Shares 1.90%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Vanguard Value Index Fund ETF Shares 2.20%
  • Weighted yield (per year) 1.75%

The portfolio's dividend yield is 1.75%, with contributions from each ETF ranging from 1.2% to 2.2%. While dividends provide a steady income stream, they are relatively modest in this portfolio. Dividends can be an important component of total returns, especially in volatile markets. To potentially increase income, consider adding high-dividend-yielding stocks or funds. However, ensure that any changes align with your overall investment strategy and risk tolerance.

Ongoing product costs Info

  • SPDR® Portfolio S&P 600 Small Cap ETF 0.03%
  • Vanguard Small-Cap Value Index Fund ETF Shares 0.07%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Value Index Fund ETF Shares 0.04%
  • Weighted costs total (per year) 0.04%

The portfolio's total expense ratio (TER) is a low 0.04%, which is favorable for long-term growth. Lower costs mean more of your investment returns stay with you. Managing costs is crucial as they can significantly impact long-term returns. While the current costs are minimal, regularly review expense ratios and consider lower-cost alternatives if available. Keeping costs low is a simple yet effective way to enhance your portfolio's performance over time.

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