A growth-oriented portfolio with low diversity and high North American concentration

Report created on Dec 8, 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 consists of four ETFs, with a heavy emphasis on the Vanguard S&P 500 ETF, making up 40% of the total. The Vanguard High Dividend Yield Index Fund ETF Shares accounts for 30%, Avantis® U.S. Small Cap Value ETF for 20%, and Schwab U.S. Dividend Equity ETF for 10%. This composition indicates a strong focus on U.S. equities, particularly large-cap stocks, with a tilt towards dividend-paying stocks. The limited number of asset types and heavy weighting towards a few ETFs suggest a less diversified approach, which might expose the portfolio to specific market risks. To enhance diversification, consider including different asset classes such as bonds or international equities.

Growth Info

Historically, the portfolio has shown a robust compound annual growth rate (CAGR) of 16.26%, suggesting strong past performance. However, it's important to remember that past performance does not guarantee future results, and the portfolio experienced a significant maximum drawdown of -36.61%. This indicates potential vulnerability during market downturns. The high returns were concentrated in a few days, which means missing these days could significantly impact overall performance. To mitigate this risk, maintaining a long-term perspective and avoiding market timing is advisable.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was projected. This method uses historical data to simulate a wide range of potential outcomes, highlighting the inherent uncertainty in investing. The 50th percentile projection suggests a potential return of 585.4%, while the 5th percentile indicates a more conservative 59.36% return. While these simulations provide a range of possible outcomes, they are not predictions. They serve as a tool to understand potential risks and rewards, emphasizing the importance of aligning investments with personal risk tolerance and goals.

Asset classes Info

  • Stocks
    100%

The portfolio's asset allocation is predominantly in stocks, with a negligible cash position. This indicates a high-risk, high-reward strategy typical of growth-oriented portfolios. The lack of exposure to other asset classes like bonds or real estate can increase volatility but may also offer higher returns over the long term. Diversifying into other asset classes could potentially reduce risk and provide more stable returns. Consider adding fixed-income assets to balance the portfolio, especially if market conditions become unfavorable for equities.

Sectors Info

  • Financials
    20%
  • Technology
    19%
  • Industrials
    11%
  • Consumer Discretionary
    10%
  • Health Care
    10%
  • Energy
    8%
  • Consumer Staples
    8%
  • Telecommunications
    5%
  • Utilities
    3%
  • Basic Materials
    3%
  • Real Estate
    1%

The sector allocation is fairly balanced, with notable exposure to financial services and technology, each comprising around 19% of the portfolio. There is also significant representation in industrials, consumer cyclicals, and healthcare. However, some sectors like real estate are underrepresented, which might limit diversification. Balancing sector exposure could help mitigate sector-specific risks and provide a more stable performance across different economic cycles. Consider gradually adjusting sector weights to align with broader economic trends and personal investment strategies.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

The portfolio is overwhelmingly concentrated in North American assets, with 98.77% exposure, leaving minimal allocation to other regions. This geographic concentration can lead to vulnerability to U.S. market fluctuations and economic conditions. Expanding geographic diversity by incorporating international equities could help reduce risk and capture growth opportunities in other regions. While the U.S. market has historically performed well, other regions might offer unique opportunities and diversification benefits, especially in emerging markets.

Redundant positions Info

  • Schwab U.S. Dividend Equity ETF
    Vanguard High Dividend Yield Index Fund ETF Shares
    High correlation

The assets in the portfolio exhibit high correlation, particularly between the Schwab U.S. Dividend Equity ETF and the Vanguard High Dividend Yield Index Fund ETF Shares. High correlation means these assets tend to move in the same direction, reducing the diversification benefit. This could amplify losses during market downturns. To manage risk more effectively, consider replacing highly correlated assets with those that have lower correlation, potentially enhancing the portfolio's overall stability and risk-adjusted 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, a concept that represents the best possible risk-return balance. By adjusting the allocation among existing assets, it's possible to achieve a more efficient portfolio. This doesn't necessarily mean adding new assets but reallocating within the current selection to improve the risk-return ratio. Consider consulting with a financial advisor to explore optimization strategies, ensuring alignment with personal risk tolerance and investment objectives.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Schwab U.S. Dividend Equity ETF 2.50%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard High Dividend Yield Index Fund ETF Shares 2.70%
  • Weighted yield (per year) 1.84%

The portfolio has a total dividend yield of 1.84%, with the Vanguard High Dividend Yield Index Fund ETF Shares providing the highest yield at 2.7%. Dividends can offer a steady income stream and contribute to total returns, especially in volatile markets. While the yield is moderate, focusing on dividend growth strategies or reinvesting dividends could enhance long-term returns. For investors seeking income, increasing exposure to higher-yielding assets might be beneficial, but it's crucial to balance yield with potential risks.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard High Dividend Yield Index Fund ETF Shares 0.06%
  • Weighted costs total (per year) 0.09%

The portfolio's total expense ratio (TER) is relatively low at 0.09%, indicating cost-efficient management. Lower costs can significantly improve long-term returns by minimizing the drag on performance. Each ETF has a different expense ratio, with the Avantis® U.S. Small Cap Value ETF being the most expensive at 0.25%. While the cost is reasonable, regularly reviewing fees and exploring lower-cost alternatives can further enhance returns. Consider the cost-benefit trade-off when evaluating potential changes to the portfolio.

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