A Growth-Oriented Portfolio with Broad Diversification and High Correlation Among U.S. Equities

Report created on Dec 5, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

This portfolio is made up of four ETFs, with a strong focus on U.S. equities. The Vanguard S&P 500 ETF takes up half of the portfolio, giving it a solid base in large-cap U.S. stocks. The Avantis U.S. Small Cap Value ETF adds exposure to smaller companies, while the Vanguard Total International Stock Index Fund ETF provides international diversification. The Vanguard Growth Index Fund ETF adds a growth-oriented twist. This composition suggests a growth-focused strategy, with a tilt towards U.S. markets. The portfolio is broadly diversified across sectors and geographies, which is a positive aspect.

Growth Info

Historically, the portfolio has shown a strong performance with a CAGR of 16.62%, reflecting its growth-oriented nature. However, this comes with a significant max drawdown of -35.96%, indicating potential volatility. The fact that 90% of the returns are concentrated in just 17 days suggests a reliance on key market movements. This pattern is typical for growth-focused portfolios, which can experience sharp ups and downs. While the historical performance is impressive, it's important to be prepared for potential fluctuations in value.

Projection Info

Using a Monte Carlo simulation with 1,000 simulations, the portfolio shows a promising forward projection. The median outcome suggests a potential growth of 662.83%, while the 5th percentile indicates a more conservative 57.31% growth. With 986 simulations yielding positive returns, the portfolio has a high probability of success. The annualized return of 18.18% across simulations suggests strong potential. However, as with all projections, these results are based on past data and assumptions, and actual future performance may vary.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily invested in stocks, making up over 99% of the asset allocation. This aligns with its growth profile, as equities typically offer higher returns over the long term. However, this also means increased exposure to market volatility. There is a minimal allocation to cash and other asset classes, which could limit the portfolio's ability to cushion against market downturns. For those seeking a more balanced approach, incorporating other asset classes like bonds could help reduce risk and provide more stability.

Sectors Info

  • Technology
    25%
  • Financials
    17%
  • Consumer Discretionary
    12%
  • Industrials
    11%
  • Health Care
    9%
  • Telecommunications
    7%
  • Energy
    6%
  • Consumer Staples
    5%
  • Basic Materials
    4%
  • Utilities
    2%
  • Real Estate
    2%

The sector allocation is diverse, with technology leading at 25.35%, followed by financial services and consumer cyclicals. This spread across sectors helps mitigate risks associated with downturns in any single industry. However, the high exposure to technology could lead to increased volatility, given its cyclical nature. Balancing this with more stable sectors like consumer defensives or utilities might offer a smoother ride. The varied sector allocation is a strength, but keeping an eye on sector-specific risks is essential for maintaining balance.

Regions Info

  • North America
    81%
  • Europe Developed
    8%
  • Asia Emerging
    3%
  • Japan
    3%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%
  • Latin America
    1%

Geographically, the portfolio is heavily weighted towards North America, accounting for over 80% of the allocation. While this reflects the home bias typical of U.S. investors, it also exposes the portfolio to regional risks. The inclusion of Europe, Asia, and other regions provides some diversification, but the overall international exposure is limited. Increasing the allocation to emerging markets or other developed regions could enhance diversification and potentially boost returns. Balancing geographic exposure is key to managing global market risks.

Redundant positions Info

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

The portfolio contains highly correlated assets, particularly between the Vanguard S&P 500 ETF and the Vanguard Growth Index Fund ETF Shares. This correlation suggests that these assets tend to move in the same direction, reducing diversification benefits. While having correlated assets isn't inherently bad, it can limit the portfolio's ability to withstand market volatility. To improve diversification, consider replacing or reducing exposure to overlapping assets with those that have lower correlations. This could enhance the portfolio's resilience in varying market conditions.

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.

Before optimizing the portfolio, addressing the high correlation between certain assets is crucial. By reducing overlapping investments, the portfolio can achieve better diversification and risk management. Once this is done, moving along the efficient frontier can help tailor the portfolio to a desired risk level. For a riskier approach, increasing the allocation to growth-oriented assets might be considered. Conversely, for a more conservative stance, adding bonds or other low-volatility assets can help. Adjusting the portfolio along the efficient frontier allows for a personalized risk-return balance.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Vanguard Total International Stock Index Fund ETF Shares 2.90%
  • Weighted yield (per year) 1.53%

The portfolio's dividend yield stands at 1.53%, with the Vanguard Total International Stock Index Fund ETF contributing the highest yield. This moderate yield aligns with the growth-focused nature of the portfolio, which prioritizes capital appreciation over income. While not a primary income source, dividends can provide some level of cash flow. For those seeking higher income, exploring dividend-focused investments might be beneficial. However, the current yield is suitable for investors prioritizing growth, with dividends as a secondary consideration.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.08%

The portfolio's total expense ratio (TER) is 0.08%, indicating low costs relative to industry standards. The Vanguard S&P 500 ETF and Vanguard Growth Index Fund ETF Shares contribute to this cost-efficiency with their minimal fees. Low costs are crucial for maximizing net returns, especially over the long term. Keeping investment expenses low allows more of the portfolio's returns to be reinvested. Maintaining a focus on cost-effective investments is a smart strategy for long-term growth. Regularly reviewing and managing costs can enhance overall portfolio performance.

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