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A growth-focused portfolio with high diversification and strong North American equity exposure

Report created on Dec 17, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

5/5
Highly Diversified
Less diversification More diversification

Positions

This portfolio is composed primarily of equities, with 60% in the Vanguard S&P 500 ETF, providing substantial exposure to large-cap U.S. stocks. The inclusion of the Vanguard Total International Stock Index Fund ETF Shares at 20% adds international equity exposure, while smaller allocations in U.S. Small Cap Value, Dividend Equity, and Momentum ETFs diversify the equity portion further. Bonds account for 5% of the portfolio via the Vanguard Total Bond Market Index Fund ETF Shares, offering some stability. This composition is typical for a growth-oriented portfolio, aiming for capital appreciation through a significant equity allocation. To enhance diversification, consider increasing the bond allocation or exploring alternative asset classes like real estate or commodities.

Growth Info

Historically, the portfolio has delivered a robust compound annual growth rate (CAGR) of 14.77%, albeit with a significant maximum drawdown of -32.71%. This indicates strong performance in favorable market conditions but also highlights vulnerability during downturns. The portfolio's returns are concentrated, with 90% of gains occurring over just 17 days, suggesting high volatility. While past performance can provide insights, it does not guarantee future results. To mitigate potential drawdowns, consider strategies such as increasing bond exposure or incorporating assets with lower correlation to equities.

Projection Info

Using Monte Carlo simulations, which project future outcomes based on historical data, the portfolio shows an annualized return of 14.67% across 1,000 simulations. This suggests a high probability of achieving positive returns, with 979 simulations showing gains. However, the 5th percentile outcome indicates a potential return of only 36.09%, highlighting the range of possible outcomes. While simulations offer valuable insights, they rely on historical data and may not account for future market shifts. To enhance resilience, consider stress-testing the portfolio under various economic scenarios.

Asset classes Info

  • Stocks
    95%
  • Bonds
    5%

The portfolio is heavily weighted towards equities, with stocks comprising over 94% of the allocation. Bonds make up just under 5%, providing limited downside protection. This asset class distribution aligns with a growth strategy, prioritizing capital appreciation over income generation or capital preservation. While equities offer higher potential returns, they also come with increased risk. To balance risk and return, consider diversifying into additional asset classes such as real estate or commodities, which can provide diversification benefits and reduce overall portfolio volatility.

Sectors Info

  • Technology
    24%
  • Financials
    15%
  • Consumer Discretionary
    10%
  • Health Care
    10%
  • Industrials
    10%
  • Telecommunications
    7%
  • Consumer Staples
    6%
  • Energy
    4%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    2%

The portfolio is well-diversified across sectors, with significant allocations in technology (24.4%), financial services (15.5%), and consumer cyclicals (10.3%). This sectoral balance reduces the impact of sector-specific downturns on overall performance. However, the high concentration in technology could increase vulnerability to tech sector volatility. While diversification across sectors is beneficial, it's essential to monitor sector weightings regularly and rebalance if necessary. Consider adding exposure to underrepresented sectors like utilities or real estate to further enhance diversification and reduce sector-specific risks.

Regions Info

  • North America
    76%
  • Europe Developed
    8%
  • Asia Emerging
    3%
  • Japan
    3%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

Geographically, the portfolio is predominantly invested in North America, accounting for approximately 76% of the allocation. This provides exposure to the stable and mature U.S. market but limits diversification across regions. The remaining allocation is spread across Europe, Asia, and other regions, offering some international diversification. However, the limited exposure to emerging markets may restrict potential growth opportunities. To enhance geographic diversification, consider increasing allocations to emerging markets, which can provide higher growth potential and reduce dependency on the North American market.

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.

Optimization using the Efficient Frontier suggests potential for improving the portfolio's risk-return ratio. This involves reallocating existing assets to achieve the best possible balance between risk and return. While the portfolio is already highly diversified, slight adjustments in asset weightings could enhance efficiency. For example, increasing bond exposure or reallocating among equity ETFs could optimize returns relative to risk. It's important to note that optimization focuses solely on risk and return, not diversification or other goals. Regularly reviewing and adjusting the portfolio can help maintain optimal efficiency.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Vanguard Total Bond Market Index Fund ETF Shares 3.60%
  • Schwab U.S. Dividend Equity ETF 3.60%
  • Invesco S&P 500® Momentum ETF 0.40%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.78%

The portfolio's dividend yield stands at 1.78%, with contributions from various ETFs, including the Schwab U.S. Dividend Equity ETF and the Vanguard Total Bond Market Index Fund ETF Shares, both yielding 3.6%. While not a primary focus, dividends provide a steady income stream and can enhance total returns. For investors seeking increased income, consider reallocating towards higher-yielding assets or dividend-focused funds. However, it's essential to balance yield with growth potential, as high-yield investments may come with increased risk or lower capital appreciation prospects.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Invesco S&P 500® Momentum ETF 0.13%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.06%

The portfolio's total expense ratio (TER) is 0.06%, reflecting cost-efficient management. Low costs are crucial for long-term investment success, as they directly impact net returns. The Vanguard Total Bond Market Index Fund ETF Shares and Vanguard S&P 500 ETF have particularly low expense ratios of 0.03%, contributing to overall cost efficiency. While the Avantis U.S. Small Cap Value ETF has a higher cost of 0.25%, its small allocation minimizes impact. To further reduce costs, consider evaluating the performance and fees of each holding regularly, ensuring they align with investment goals.

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