A concentrated U.S. equity portfolio with strong historical performance and low diversification

Risk profile

  • Secure
    Speculative

The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.

Diversification profile

  • Focused
    Diversified

The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.

What type of investor this portfolio is suitable for

Balanced Investors

This portfolio suits an investor with moderate risk tolerance seeking growth through U.S. equities. The focus on large-cap stocks and dividends aligns with long-term wealth-building goals, while the low diversification may appeal to those confident in the U.S. market's prospects. Ideal for investors who prioritize cost efficiency and are comfortable with some volatility, this portfolio is best suited for individuals with a medium to long-term investment horizon.

Positions

  • Vanguard S&P 500 ETF
    VOO - US9229083632
    80.00%
  • Schwab U.S. Dividend Equity ETF
    SCHD - US8085247976
    20.00%

This portfolio comprises two ETFs: the Vanguard S&P 500 ETF at 80% and the Schwab U.S. Dividend Equity ETF at 20%. It is heavily weighted towards U.S. equities, with no exposure to other asset classes like bonds or real estate. This concentrated structure means the portfolio is less diversified compared to a typical balanced portfolio, which might include a mix of stocks, bonds, and other assets. To enhance diversification, consider adding other asset classes or international equities to reduce reliance on U.S. market performance.

Growth Info

Historically, the portfolio has performed well, with a Compound Annual Growth Rate (CAGR) of 12.66%. This indicates a strong return over time, outperforming many benchmarks. However, the maximum drawdown was -33.79%, which highlights potential volatility. While past performance is not indicative of future results, understanding these trends can guide future expectations. Consider whether the past level of volatility aligns with your risk tolerance and if adjustments are necessary to mitigate potential downturns.

Projection Info

The Monte Carlo simulation, which uses historical data to predict future outcomes, suggests an optimistic outlook with a 50th percentile return of 370%. While 996 out of 1,000 simulations showed positive returns, it's important to remember that simulations are based on past data and do not guarantee future results. This projection suggests potential for significant growth, but also highlights the importance of considering diversification to manage risk and ensure more consistent returns across various market conditions.

Asset classes Info

  • Stocks
    100%

The portfolio is entirely invested in stocks, lacking exposure to other asset classes like bonds or real estate. This 100% equity allocation can lead to higher returns but also increases risk and volatility. Diversification across asset classes can help manage risk, as different assets often react differently to market conditions. Adding bonds could provide a safety net during equity downturns, while real estate or commodities might offer additional growth potential.

Sectors Info

  • Technology
    27%
  • Financials
    13%
  • Health Care
    12%
  • Consumer Discretionary
    10%
  • Consumer Staples
    9%
  • Telecommunications
    8%
  • Industrials
    8%
  • Energy
    7%
  • Utilities
    2%
  • Real Estate
    2%
  • Basic Materials
    2%

The sector allocation is skewed towards Technology at 27%, followed by Financial Services and Healthcare. This concentration in certain sectors can lead to increased volatility, especially if those sectors face downturns. A more balanced sector allocation could provide stability, as different sectors may perform well at different times. Consider diversifying into underrepresented sectors to better align with broader market indices and reduce sector-specific risk.

Regions Info

  • North America
    99%
  • Europe Developed
    1%
  • Asia Developed
    0%
  • Latin America
    0%

With 99% of the portfolio's geographic exposure in North America, there's minimal international diversification. This heavy reliance on the U.S. market can lead to vulnerability if the domestic economy underperforms. Expanding geographic exposure to include Europe, Asia, or emerging markets could enhance diversification and potentially improve returns by capturing growth opportunities outside North America. This can also help mitigate risks associated with regional economic downturns.

Market capitalization Info

  • Mega-cap
    39%
  • Large-cap
    38%
  • Mid-cap
    21%
  • Small-cap
    2%
  • Micro-cap
    0%

The portfolio's market capitalization is heavily weighted towards Mega and Big cap stocks, comprising 77% of the allocation. While large-cap stocks offer stability and lower volatility, they may also have slower growth potential compared to smaller companies. Including more Medium and Small cap stocks could enhance growth prospects and provide diversification benefits, as these companies often outperform larger counterparts in certain market conditions.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 4.00%
  • Vanguard S&P 500 ETF 1.40%
  • Weighted yield (per year) 1.92%

The portfolio's dividend yield is 1.92%, primarily driven by the Schwab U.S. Dividend Equity ETF's 4% yield. Dividends can provide a steady income stream, especially during periods of market volatility. For investors seeking income, focusing on dividend-paying stocks or funds can be beneficial. However, ensure that the focus on dividends does not compromise overall growth potential. Balancing income and growth is key to achieving long-term investment goals.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.04%

The portfolio's cost is impressively low, with a Total Expense Ratio (TER) of 0.04%. Low costs are advantageous as they enhance net returns over time, allowing more of the investment's growth to benefit the investor. This cost efficiency aligns well with best practices in portfolio management. Maintaining low costs while ensuring adequate diversification and risk management will support better long-term 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.

The portfolio could be optimized using the Efficient Frontier, which seeks the best possible risk-return ratio based on current assets. This method involves adjusting asset weights to achieve an ideal balance between risk and return. While this portfolio is already cost-effective, exploring optimization could enhance returns without significantly increasing risk. However, keep in mind that optimization focuses on risk-return efficiency, not necessarily diversification or other investment goals.

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