A growth-focused portfolio with high US equity concentration and low diversification

Report created on Jan 15, 2025

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 heavily weighted towards US equities, with a 50% allocation to the Fidelity 500 Index Fund and significant positions in growth-focused ETFs, such as the Schwab U.S. Large-Cap Growth ETF and Invesco NASDAQ 100 ETF. This composition is typical for a growth-oriented portfolio, aiming for capital appreciation. However, the low diversification score indicates a concentration risk. Balancing the portfolio with a wider range of asset classes, such as bonds or international equities, could mitigate potential risks and enhance stability.

Growth Info

The historical performance of the portfolio has been strong, with a Compound Annual Growth Rate (CAGR) of 15.54%. This impressive return is partly due to the dominance of US equities, which have performed well over the past decade. However, the maximum drawdown of -29.49% highlights the portfolio's vulnerability during market downturns. While past performance is an indicator, it's important to remember that it doesn't guarantee future results. Diversifying into less volatile assets could help reduce drawdowns in adverse market conditions.

Projection Info

The Monte Carlo simulation, which uses historical data to project future outcomes, suggests a wide range of potential returns, with a median result of 603.48%. This indicates a high level of uncertainty and potential volatility. While the simulation shows a positive outlook, with 996 out of 1,000 simulations yielding positive returns, investors should be cautious. The reliance on historical data means actual future performance could vary. Considering alternative scenarios and stress testing against different market conditions could provide a more comprehensive understanding of potential risks.

Asset classes Info

  • Stocks
    100%

The portfolio is nearly entirely composed of stocks, with a minuscule cash position. This heavy stock allocation can drive growth but also increases risk, especially during market downturns. Diversification across different asset classes, such as bonds or real estate, could reduce risk and provide more balanced returns. Comparing this allocation to benchmark norms, which typically include a mix of stocks and bonds, highlights the portfolio's aggressive growth focus. Introducing a small percentage of fixed-income assets might improve stability without significantly impacting growth potential.

Sectors Info

  • Technology
    41%
  • Telecommunications
    11%
  • Financials
    9%
  • Health Care
    9%
  • Consumer Discretionary
    7%
  • Industrials
    6%
  • Consumer Discretionary
    5%
  • Consumer Staples
    4%
  • Energy
    2%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    1%

Technology dominates the sector allocation, comprising over 40% of the portfolio, followed by communication services and financial services. This concentration in tech could lead to higher volatility, especially during periods of regulatory changes or interest rate hikes. A more balanced sector allocation, similar to common benchmarks, could provide better risk management. Diversifying into sectors like healthcare or consumer staples might offer more stability and reduce the impact of sector-specific downturns, aligning the portfolio with broader market trends.

Regions Info

  • North America
    99%

The portfolio's geographic exposure is overwhelmingly concentrated in North America, with over 99% allocation. This lack of international diversification increases vulnerability to regional economic downturns. A more balanced geographic allocation, including emerging markets or developed regions outside North America, could enhance diversification and capture growth opportunities globally. Comparing this to benchmark allocations, which typically have more international exposure, highlights the potential risk of limited geographic diversification. Expanding into global markets could mitigate regional risks and improve long-term growth prospects.

Redundant positions Info

  • Schwab U.S. Large-Cap Growth ETF
    Vanguard Growth Index Fund ETF Shares
    Invesco NASDAQ 100 ETF
    High correlation

The portfolio contains highly correlated assets, particularly among the Schwab U.S. Large-Cap Growth ETF, Vanguard Growth Index Fund ETF Shares, and Invesco NASDAQ 100 ETF. High correlation means these assets tend to move together, which can limit diversification benefits. During market downturns, such correlations can exacerbate losses. Reducing overlap by selecting assets with lower correlation can enhance diversification and risk management. Exploring alternative assets that provide unique exposure or different market responses could improve the portfolio's resilience.

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 asset allocation could be optimized using the Efficient Frontier concept, which seeks the best risk-return ratio. However, the presence of highly correlated assets limits diversification benefits. Before optimizing, addressing these overlaps by introducing assets with lower correlation could enhance diversification. The Efficient Frontier is based on historical data and assumes rational market behavior, so while it offers a theoretical framework, real-world factors may lead to different outcomes. Adjusting the asset mix could improve efficiency without sacrificing growth potential.

Dividends Info

  • Fidelity 500 Index Fund 1.30%
  • Invesco NASDAQ 100 ETF 0.60%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Weighted yield (per year) 0.89%

The overall dividend yield of the portfolio is relatively low at 0.89%, reflecting its growth focus. Dividends play a minor role in total returns, as the portfolio prioritizes capital appreciation. For investors seeking income, this yield might not be sufficient. However, for growth-oriented investors, reinvesting dividends can contribute to compounding returns over time. Balancing growth with income-generating assets, like dividend-paying stocks or bonds, could provide a more holistic return profile, catering to both growth and income needs.

Ongoing product costs Info

  • Fidelity 500 Index Fund 0.02%
  • Invesco NASDAQ 100 ETF 0.15%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Weighted costs total (per year) 0.04%

The portfolio boasts impressively low costs, with a Total Expense Ratio (TER) of 0.04%. This cost efficiency supports better long-term performance by minimizing the drag on returns. Low fees are beneficial, as they allow more of the portfolio's growth to be retained by the investor. This aligns well with best practices for cost management in investing. Maintaining this low-cost structure while exploring opportunities to further enhance diversification and risk management could optimize the portfolio's overall performance.

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