Growth-Oriented Portfolio with High Diversification and Overlapping Assets Needs Optimization for Better Efficiency

Report created on Nov 24, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

5/5
Highly Diversified
Less diversification More diversification

Positions

The portfolio is a mix of ETFs and common stocks, with a strong emphasis on equities. ETFs like Vanguard Total Stock Market and iShares Core MSCI International Developed Market make up a significant portion, while individual stocks like Costco and NVIDIA add some flavor. This composition suggests a growth-oriented strategy with a focus on broad market exposure. The presence of a bond ETF and a real estate ETF adds some diversification, but the overall allocation is heavily skewed towards stocks. To balance risk, consider slightly increasing the bond allocation or other lower-risk assets.

Growth Info

Historically, the portfolio has performed well with a compound annual growth rate (CAGR) of 15.79%. However, it experienced a significant drawdown of 37%. This indicates a high volatility, which is typical for growth-focused portfolios. The performance is concentrated, with a few days accounting for the majority of returns. This suggests reliance on market timing, which can be risky. To mitigate this, a more diversified approach or rebalancing strategy might help stabilize returns over time, reducing the impact of volatile market movements.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was analyzed. This method uses random sampling to predict future returns based on historical data. The results show a wide range of outcomes, with a median expected growth of 1,259.58%. The 5th percentile shows a modest return, while the 67th percentile is quite optimistic. This indicates potential for high returns, but also highlights the uncertainty and risk involved. To improve confidence in future outcomes, consider diversifying further or adjusting the risk profile to align with long-term goals.

Asset classes Info

  • Stocks
    96%
  • Bonds
    3%
  • Real Estate
    1%

The asset allocation is heavily weighted towards stocks, making up 95.6% of the portfolio. Bonds and real estate are present but minimal, at 2.6% and 1.5% respectively. This stock-heavy allocation aligns with a growth strategy, but may expose the portfolio to significant volatility. A more balanced approach, incorporating more bonds or other fixed-income assets, could provide stability during market downturns. Adjusting the allocation to include a greater variety of asset classes might help mitigate risk and smooth returns over time.

Sectors Info

  • Technology
    23%
  • Financials
    14%
  • Consumer Staples
    12%
  • Health Care
    12%
  • Industrials
    9%
  • Consumer Discretionary
    9%
  • Telecommunications
    6%
  • Basic Materials
    4%
  • Real Estate
    4%
  • Energy
    3%
  • Utilities
    2%

The portfolio is diversified across multiple sectors, with technology leading at 22.7%, followed by financial services and consumer defensive. This spread suggests a strategic approach to capture growth from various industries. However, the high concentration in technology could increase vulnerability to sector-specific downturns. To reduce sector risk, consider diversifying further within underrepresented sectors like utilities or basic materials. This can help cushion the impact of sector volatility and contribute to a more resilient portfolio.

Regions Info

  • North America
    60%
  • Europe Developed
    11%
  • Asia Emerging
    10%
  • Asia Developed
    7%
  • Japan
    4%
  • Africa/Middle East
    2%
  • Australasia
    1%
  • Latin America
    1%

Geographically, the portfolio is predominantly invested in North America, accounting for 60.2% of the allocation. Other regions like Europe Developed and Asia Emerging also have notable representation. This geographic spread offers exposure to different economic environments, but the heavy North American focus could limit potential gains from emerging markets. To enhance geographic diversification, consider increasing allocations to regions with different economic cycles or growth prospects. This can help balance risks and capitalize on global opportunities.

Redundant positions Info

  • WisdomTree U.S. Quality Dividend Growth Fund
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio features some highly correlated assets, particularly between the WisdomTree U.S. Quality Dividend Growth Fund and the Vanguard Total Stock Market Index Fund. High correlation means these assets tend to move in the same direction, reducing diversification benefits. To enhance diversification, consider replacing one of these with an asset that behaves differently under similar market conditions. This can help reduce overall portfolio volatility and improve the risk-return profile, leading to more consistent performance.

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 issue of overlapping, highly correlated assets is crucial. Removing or replacing these assets can enhance diversification, leading to more efficient risk management. The current portfolio's expected return is lower than that of a more optimized portfolio with the same risk level. By adjusting the asset mix along the efficient frontier, one can achieve either a riskier or more conservative portfolio. This involves reallocating assets to balance risk and return, aligning with personal investment goals and risk tolerance.

Dividends Info

  • Costco Wholesale Corp 2.00%
  • WisdomTree U.S. Quality Dividend Growth Fund 1.40%
  • iShares Core MSCI International Developed Market 3.00%
  • iShares Core MSCI Emerging Markets ETF 2.70%
  • Vanguard Long-Term Corporate Bond Index Fund ETF Shares 5.00%
  • Vanguard Real Estate Index Fund ETF Shares 3.80%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 2.01%

The portfolio has a modest dividend yield of 2.01%, with contributions from several components like the iShares Core MSCI International Developed Market and Vanguard Long-Term Corporate Bond Index Fund. Dividends provide a steady income stream, which can be reinvested for compound growth or used for cash flow. While the yield is not the primary focus for a growth portfolio, it adds a layer of stability. Consider reinvesting dividends to maximize compounding benefits, or slightly increasing dividend-paying assets for more income stability.

Ongoing product costs Info

  • WisdomTree U.S. Quality Dividend Growth Fund 0.28%
  • iShares Core MSCI International Developed Market 0.04%
  • iShares Core MSCI Emerging Markets ETF 0.09%
  • Vanguard Long-Term Corporate Bond Index Fund ETF Shares 0.04%
  • Vanguard Real Estate Index Fund ETF Shares 0.12%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.05%

The portfolio's total expense ratio (TER) is low at 0.05%, indicating cost efficiency. Most ETFs have minimal fees, with the highest being the WisdomTree U.S. Quality Dividend Growth Fund at 0.28%. Keeping costs low is crucial for maximizing net returns over time. Even small differences in fees can significantly impact long-term performance. To maintain this cost efficiency, regularly review and compare fees of current holdings with similar alternatives. This ensures that the portfolio remains cost-effective, enhancing overall returns without sacrificing quality.

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