A growth-focused US-heavy portfolio with significant tech exposure and low diversification

Report created on Dec 19, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

This portfolio is heavily weighted towards equities, with a substantial 40% allocation in the Vanguard S&P 500 ETF, complemented by other large-cap, mid-cap, and small-cap ETFs. The composition leans towards growth, consistent with its risk classification. Compared to common benchmarks, this portfolio has a higher concentration in US equities, which could limit international diversification. While the focus on growth is clear, the lack of diversity across asset classes may expose the portfolio to higher volatility. To enhance resilience, consider incorporating other asset classes like bonds or international equities.

Growth Info

Historically, the portfolio has demonstrated impressive growth, with a compound annual growth rate (CAGR) of 20.36%. This performance surpasses many standard benchmarks, reflecting the strong historical returns of US equities, particularly in the technology sector. However, the portfolio also experienced a significant maximum drawdown of -34.7%, indicating potential vulnerability during market downturns. While past performance is not a guarantee of future results, maintaining a diversified approach can help mitigate such risks. Regularly reviewing asset allocation and considering rebalancing can help manage volatility.

Projection Info

Utilizing Monte Carlo simulations, the portfolio shows a wide range of potential outcomes, with an annualized return of 25.8%. This method uses historical data to project future performance, acknowledging that past trends may not continue. The simulations suggest a high probability of positive returns, but the range of outcomes highlights inherent uncertainty. While the median projection is promising, it's crucial to prepare for less favorable scenarios. Regularly reassessing the portfolio's risk profile and ensuring it aligns with your financial goals can help manage expectations and adapt to changing market conditions.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with a negligible cash position. This heavy reliance on equities can drive growth, particularly in a bull market, but also introduces significant risk during downturns. Compared to diversified benchmarks, the lack of fixed-income assets or commodities reduces the portfolio's ability to cushion against volatility. Introducing a mix of asset classes can enhance diversification and potentially improve the risk-return profile. Consider incorporating bonds or alternative investments to balance the equity-heavy allocation and provide stability during market fluctuations.

Sectors Info

  • Technology
    39%
  • Financials
    13%
  • Consumer Discretionary
    11%
  • Industrials
    10%
  • Health Care
    7%
  • Telecommunications
    6%
  • Consumer Staples
    4%
  • Energy
    3%
  • Basic Materials
    2%
  • Real Estate
    1%
  • Utilities
    1%

The portfolio is notably concentrated in the technology sector, which constitutes over 39% of the allocation. This focus aligns with growth objectives but could lead to increased volatility, particularly during interest rate hikes or tech sector downturns. Other sectors, such as financial services and consumer cyclicals, provide some balance but remain underrepresented compared to broad market indices. Diversifying into sectors with lower correlation to technology could help reduce risk. Regularly reviewing sector allocations and adjusting based on market conditions and economic outlooks can enhance resilience.

Regions Info

  • North America
    98%
  • Asia Developed
    1%
  • Europe Developed
    1%

With 97.8% of the portfolio allocated to North American assets, geographic diversification is limited. This concentration exposes the portfolio to regional economic risks and may miss opportunities in other global markets. While the US has historically been a strong performer, diversifying into international markets can offer exposure to different economic cycles and growth potentials. Consider increasing allocations to developed and emerging markets outside North America to enhance diversification and capture global growth opportunities.

Redundant positions Info

  • Fidelity® MSCI Information Technology Index ETF
    Schwab U.S. Large-Cap Growth ETF
    High correlation

The portfolio contains highly correlated assets, particularly within the technology sector. This correlation can amplify risk during market downturns, as assets may move in tandem. While correlation can boost returns in rising markets, it limits diversification benefits. Reducing overlap by selecting assets with lower correlation can improve the portfolio's risk-adjusted returns. Assessing asset correlations regularly and adjusting holdings to minimize redundancy can enhance diversification and reduce 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.

The portfolio's current allocation could be optimized using the Efficient Frontier, which seeks the best risk-return ratio for a given set of assets. However, before optimizing, addressing the high correlation between certain assets is crucial to maximize diversification benefits. By adjusting allocations and potentially introducing new assets, the portfolio could achieve a more efficient balance. Regularly reviewing and rebalancing holdings based on performance and market conditions can ensure alignment with the Efficient Frontier and enhance overall portfolio efficiency.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.60%
  • Fidelity® MSCI Information Technology Index ETF 0.40%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard S&P 500 ETF 1.30%
  • Invesco S&P MidCap Momentum ETF 0.20%
  • Weighted yield (per year) 0.82%

The portfolio's dividend yield is relatively modest at 0.82%, reflecting its growth-oriented focus. While dividends contribute to total returns, this portfolio prioritizes capital appreciation over income generation. For investors seeking regular income, increasing exposure to higher-yielding assets could be beneficial. However, maintaining a balance between growth and income is crucial to achieving long-term objectives. Regularly evaluating dividend policies and considering reinvestment strategies can optimize returns and align with financial goals.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Fidelity® MSCI Information Technology Index ETF 0.08%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • VanEck Semiconductor ETF 0.35%
  • Vanguard S&P 500 ETF 0.03%
  • Invesco S&P MidCap Momentum ETF 0.34%
  • Weighted costs total (per year) 0.13%

With a total expense ratio (TER) of 0.13%, the portfolio is cost-efficient, supporting better long-term performance. Lower costs enhance net returns, making it easier to achieve financial goals. The Vanguard S&P 500 ETF and Schwab U.S. Large-Cap Growth ETF have particularly low fees, contributing to this efficiency. Continuously monitoring fees and considering lower-cost alternatives can further improve the cost structure. Ensuring that the benefits of higher-cost assets justify their expenses is key to maintaining a cost-effective portfolio.

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