Growth-Oriented Portfolio with High Risk and Low Diversification Needs Optimization for Better Performance

Report created on Dec 2, 2024

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 composed entirely of ETFs, with significant allocations to Schwab U.S. Dividend Equity ETF, Vanguard Information Technology Index Fund ETF Shares, Schwab U.S. Large-Cap Growth ETF, and Vanguard S&P 500 ETF. This structure reflects a preference for U.S. equities, with a focus on dividend-paying stocks and technology. While this might be suitable for capturing growth in these areas, the portfolio lacks diversification, which could expose it to higher risk during market downturns. It's crucial to consider adding more variety to the portfolio to balance the risk and potential returns.

Growth Info

Historically, the portfolio has shown strong performance, with a compound annual growth rate (CAGR) of 16.0%. This impressive figure indicates the portfolio's capacity to generate substantial returns over time. However, the maximum drawdown of -32.62% highlights the potential risk involved, as significant losses can occur during market downturns. The concentration of returns in just 38 days suggests that the portfolio's performance is heavily reliant on specific market movements, which may not be sustainable in the long term. Diversifying the portfolio could help mitigate these risks and provide more stable returns.

Projection Info

A Monte Carlo simulation was conducted with 1,000 simulations to project future performance based on historical data. Assuming a hypothetical initial investment, the results show a wide range of potential outcomes, with the 5th percentile at 126.4% and the 67th percentile at 1,027.42%. The median projection is a 720.03% return, indicating a strong growth potential. However, the high variance in outcomes underscores the importance of diversification to reduce risk and increase the likelihood of achieving favorable results. Diversifying asset classes could help stabilize returns while maintaining growth potential.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, comprising 99.85% of the allocation, with a negligible amount in cash. This high concentration in equities aligns with a growth-oriented strategy but also increases exposure to market volatility. While equities offer the potential for high returns, incorporating other asset classes such as bonds or real estate could provide stability and reduce risk. Balancing the portfolio with a mix of asset classes can help achieve a more consistent performance, especially during periods of market turbulence.

Sectors Info

  • Technology
    44%
  • Financials
    11%
  • Health Care
    10%
  • Consumer Discretionary
    9%
  • Industrials
    6%
  • Consumer Staples
    6%
  • Telecommunications
    6%
  • Energy
    5%
  • Basic Materials
    1%
  • Utilities
    1%
  • Real Estate
    1%

The sector allocation is heavily skewed towards technology, which makes up 43.79% of the portfolio. This concentration exposes the portfolio to sector-specific risks, particularly if the technology sector underperforms. Other sectors like financial services, healthcare, and consumer cyclicals have moderate representation, but there's room for improvement in diversification. A more balanced sector allocation could help mitigate risks associated with sector downturns and increase resilience. Exploring opportunities in underrepresented sectors could enhance diversification and overall portfolio performance.

Regions Info

  • North America
    99%

Geographically, the portfolio is overwhelmingly focused on North America, with 99.4% of assets allocated to this region. This lack of geographic diversification exposes the portfolio to region-specific risks, such as economic downturns or political instability in the U.S. While the U.S. market offers growth opportunities, global diversification could provide exposure to different economic cycles and growth prospects. Expanding the geographic allocation to include more international assets could enhance diversification and potentially improve risk-adjusted returns.

Redundant positions Info

  • Vanguard Information Technology Index Fund ETF Shares
    Schwab U.S. Large-Cap Growth ETF
    Vanguard S&P 500 ETF
    High correlation

The portfolio contains highly correlated assets, particularly among the Vanguard Information Technology Index Fund ETF Shares, Schwab U.S. Large-Cap Growth ETF, and Vanguard S&P 500 ETF. This correlation reduces the diversification benefits and increases the portfolio's vulnerability to market fluctuations. By holding assets that move together, the portfolio may experience amplified losses during downturns. Reducing reliance on correlated assets and introducing investments with low correlation could enhance diversification and improve the portfolio's resilience to market volatility.

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 assets is essential. Removing overlapping holdings can enhance diversification and improve performance. To achieve a riskier portfolio, one might consider increasing exposure to equities or growth-oriented sectors. Conversely, a more conservative approach could involve adding bonds or other less volatile asset classes. The efficient frontier concept can guide adjustments, balancing risk and return. Optimizing the portfolio involves strategic reallocation, focusing on diversification while maintaining alignment with investment goals and risk tolerance.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.30%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.62%

The portfolio's dividend yield stands at 1.62%, with the Schwab U.S. Dividend Equity ETF contributing the most at 3.3%. While this provides a steady income stream, the overall yield is relatively modest for a dividend-focused strategy. Enhancing the dividend yield could be achieved by incorporating additional dividend-paying assets or funds. This would not only improve income generation but also add an element of stability to the portfolio. Evaluating the dividend potential of existing and new investments could help optimize income without sacrificing growth.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.06%

The portfolio's total expense ratio (TER) is 0.06%, which is commendably low, reflecting cost-efficient investment choices. Low costs are beneficial as they enhance net returns over time. However, while keeping expenses low is important, it should not come at the expense of diversification and risk management. Ensuring that cost-effective investments also contribute to a well-balanced and diversified portfolio is crucial. Investors should remain vigilant about fees but also consider the broader picture of portfolio composition and performance.

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