A growth-focused portfolio heavily weighted in US equities with low diversification

Report created on Dec 31, 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 heavily concentrated in US equities, with 99.7% in stocks and a significant portion in the Vanguard S&P 500 ETF at 49%. This composition is typical for growth-oriented portfolios but lacks diversification across different asset classes. Having such a high allocation in a single ETF can lead to increased risk if the S&P 500 underperforms. To enhance stability and potentially reduce risk, consider diversifying into other asset classes like bonds or international equities. This could provide a buffer against market volatility and improve the portfolio's resilience.

Growth Info

Historically, the portfolio has achieved a strong Compound Annual Growth Rate (CAGR) of 15.16%, indicating robust performance. However, it has also experienced a significant maximum drawdown of -31.78%, reflecting potential volatility. While the high growth rate is appealing, the drawdown highlights the risk associated with a concentrated equity portfolio. Comparing this performance to a balanced benchmark may reveal the benefits of diversification. Consider diversifying to mitigate future drawdowns while maintaining growth potential.

Projection Info

Monte Carlo simulations, which use historical data to project future outcomes, suggest a wide range of potential returns. The median simulation predicts a 614.34% increase, but outcomes vary significantly. While the simulations show a high probability of positive returns, they also underscore the uncertainty inherent in relying solely on historical data. Diversifying the portfolio could help achieve more consistent returns. Remember, simulations are hypothetical and past performance is not a guarantee of future results.

Asset classes Info

  • Stocks
    100%

The portfolio is dominated by a single asset class: equities. This lack of diversification can increase vulnerability to market downturns. In comparison, a more balanced portfolio might include a mix of stocks, bonds, and alternative assets, offering better risk management. By incorporating other asset classes, you can potentially reduce volatility and enhance risk-adjusted returns. Consider exploring fixed income or real assets to create a more resilient investment strategy.

Sectors Info

  • Technology
    34%
  • Consumer Discretionary
    12%
  • Financials
    11%
  • Telecommunications
    10%
  • Health Care
    10%
  • Industrials
    7%
  • Consumer Staples
    7%
  • Energy
    4%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    1%

The portfolio is heavily weighted towards technology, comprising 33.6% of the total allocation. While this sector has driven growth, it's also prone to volatility, especially during economic shifts or interest rate changes. Other sectors like consumer cyclicals and financial services are underrepresented. Aligning sector allocations closer to benchmark indices can help balance risk. Consider adjusting sector weights to reflect broader economic trends and reduce potential sector-specific risks.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

There is a strong geographic concentration in North America, accounting for nearly 99% of the portfolio. This limits exposure to international markets, which can provide diversification benefits and access to different growth opportunities. A more balanced geographic distribution could mitigate region-specific risks and enhance long-term returns. Consider increasing exposure to international markets, such as Europe or Asia, to capitalize on global economic growth and reduce reliance on the US market.

Redundant positions Info

  • Vanguard S&P 500 ETF
    Vanguard Growth Index Fund ETF Shares
    Invesco QQQ Trust
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio's assets are highly correlated, particularly among the large-cap US equity ETFs. This means they tend to move in the same direction, limiting diversification benefits during market downturns. High correlation can amplify portfolio volatility, making it more susceptible to market swings. To improve diversification, consider including assets with lower correlations, such as international equities or bonds. This could enhance risk management and potentially improve the overall risk-return profile.

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 be optimized using the Efficient Frontier, which seeks the best possible risk-return balance. However, the current asset correlation suggests limited diversification benefits. Before optimizing, consider reducing overlap among highly correlated ETFs to enhance diversification. This adjustment can help achieve a more efficient portfolio, balancing risk and return more effectively. Remember, optimization focuses on the current assets and their allocation, not on expanding asset classes.

Dividends Info

  • Invesco QQQ Trust 0.60%
  • Schwab U.S. Dividend Equity ETF 3.70%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Weighted yield (per year) 1.53%

The portfolio has a moderate dividend yield of 1.53%, primarily driven by the Schwab U.S. Dividend Equity ETF. Dividends can provide a steady income stream and help cushion against market volatility. However, the focus on growth ETFs suggests a preference for capital appreciation over income. If income generation is a goal, consider increasing allocation to dividend-focused investments. Balancing growth and income can create a more stable and rewarding investment experience.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Weighted costs total (per year) 0.08%

The portfolio's total expense ratio (TER) is impressively low at 0.08%, with individual ETF costs ranging from 0.03% to 0.2%. Low costs are beneficial as they enhance net returns over time. Keeping expenses in check is crucial for long-term growth, especially in a growth-focused portfolio. Regularly review and compare expense ratios to ensure you're getting value for money. Consider replacing higher-cost funds with more cost-effective alternatives to maximize returns.

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