Growth-Oriented Portfolio with Low Diversity and High Correlation Among Assets

Report created on Nov 10, 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 weighted towards two large ETFs, each making up 38% of the total. This creates a concentration risk. Additionally, the portfolio includes three other ETFs, each with a smaller allocation. While this setup can drive growth, it lacks diversification. The focus is on U.S. equities, reflecting a growth-oriented strategy. This composition may lead to volatility, but it also offers potential for significant returns. To enhance stability, consider diversifying into more asset classes or regions to balance the equity-heavy approach.

Growth Info

Historically, the portfolio has delivered a commendable CAGR of 14.65%, showcasing its growth potential. However, it has also experienced significant drawdowns, with a maximum of -34.03%. This indicates that while the portfolio can generate strong returns, it is also susceptible to substantial losses during market downturns. The concentrated nature of the holdings may contribute to this volatility. To mitigate risk, consider incorporating assets that can provide downside protection, such as bonds or other fixed-income instruments, to balance the aggressive equity exposure.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was projected. The median (50th percentile) outcome suggests a potential growth of 630.61%, while the 5th percentile shows a more conservative estimate of 128.58%. Impressively, 999 out of 1,000 simulations resulted in positive returns, highlighting the portfolio's growth potential. However, the high variability in outcomes underscores the need for risk management. To achieve a more stable growth trajectory, consider diversifying the portfolio to reduce dependency on a few high-growth assets.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with a negligible allocation to cash. This aggressive stance is suitable for investors seeking high growth but comes with increased risk. The lack of other asset classes, such as bonds or commodities, limits the portfolio's ability to withstand market fluctuations. To enhance resilience, consider allocating a portion of the portfolio to non-equity asset classes. This can help cushion against equity market volatility and provide a more balanced risk-return profile.

Sectors Info

  • Technology
    36%
  • Financials
    13%
  • Health Care
    11%
  • Consumer Discretionary
    10%
  • Industrials
    8%
  • Telecommunications
    8%
  • Consumer Staples
    5%
  • Energy
    4%
  • Utilities
    3%
  • Real Estate
    2%
  • Basic Materials
    2%

The portfolio is heavily skewed towards the technology sector, which makes up over 36% of the allocation. While this sector has strong growth prospects, the concentration increases risk. Other sectors like financial services and healthcare have smaller allocations, offering some diversification. However, sectors such as real estate and basic materials are underrepresented. To mitigate sector-specific risks, consider reallocating funds to achieve a more balanced sector distribution. This can help protect the portfolio from downturns in any single sector and provide more stable returns.

Regions Info

  • North America
    99%

Geographically, the portfolio is overwhelmingly focused on North America, with over 99% of assets allocated there. This regional concentration exposes the portfolio to risks specific to the U.S. market. While the U.S. has been a strong performer, diversification into other regions could reduce risk and tap into growth opportunities elsewhere. Consider expanding geographic exposure to include more developed and emerging markets. This can help hedge against regional economic downturns and provide a broader base for potential gains.

Redundant positions Info

  • SPDR® Portfolio S&P 500 ETF
    Vanguard Information Technology Index Fund ETF Shares
    Schwab U.S. Large-Cap Growth ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    iShares Core Dividend Growth ETF
    High correlation

The portfolio's assets are highly correlated, with several ETFs moving in tandem. This high correlation limits the diversification benefits and increases vulnerability to market swings. When assets are closely correlated, the portfolio may experience significant volatility during market downturns. To improve diversification, consider incorporating assets that have a lower correlation with the current holdings. This can help smooth out returns and reduce overall portfolio risk, providing a more stable investment experience.

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 setup suggests room for optimization, primarily by addressing the high correlation among assets. Before making adjustments, consider reducing the overlap in holdings to enhance diversification. By moving along the efficient frontier, investors can achieve a more balanced risk-return profile. To make the portfolio riskier, increase allocation to high-growth sectors. Conversely, shifting towards more conservative assets can reduce risk. Prioritize diversification and risk management to optimize the portfolio effectively, ensuring alignment with financial goals and risk tolerance.

Dividends Info

  • iShares Core Dividend Growth ETF 2.10%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • SPDR® Portfolio S&P 500 ETF 1.20%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 1.23%

The portfolio's overall dividend yield is 1.23%, with the iShares Core Dividend Growth ETF contributing the highest yield at 2.1%. While dividends provide a steady income stream, the focus on growth-oriented ETFs means lower yield overall. For investors seeking income, this yield may be insufficient. To enhance the income component, consider increasing exposure to dividend-focused assets. Balancing growth with income can provide a more comprehensive return profile, catering to both capital appreciation and cash flow needs.

Ongoing product costs Info

  • iShares Core Dividend Growth ETF 0.08%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • SPDR® Portfolio S&P 500 ETF 0.02%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.04%

The portfolio's total expense ratio is impressively low at 0.04%, minimizing the drag on returns. This cost efficiency is a significant advantage, allowing more of the portfolio's gains to be retained by the investor. Keeping costs low is crucial for maximizing long-term returns. However, while low costs are beneficial, they should not be the sole focus. Ensure that the portfolio's asset allocation aligns with investment goals and risk tolerance, even if it means incurring slightly higher costs for better diversification.

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