A growth-focused portfolio with high US exposure and limited diversification across sectors and regions

Report created on Dec 19, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

1/5
Single-Focused
Less diversification More diversification

Positions

The portfolio is composed predominantly of equity funds and ETFs, with a significant allocation toward large-cap growth and dividend-focused products. The allocation is spread across six main funds, with a substantial concentration in technology and large-cap US equities. This composition suggests a focus on potential capital appreciation and dividend income. However, the limited exposure to bonds and cash indicates a higher risk profile. To enhance stability, consider incorporating a broader range of asset types, such as bonds or international equities, to mitigate potential volatility.

Growth Info

Historically, the portfolio has delivered a strong compound annual growth rate (CAGR) of 14.65%, indicating robust performance over past market cycles. This growth rate reflects the portfolio's heavy exposure to large-cap US equities and technology sectors, which have been strong performers. However, the maximum drawdown of -31.71% highlights the potential downside risk in volatile markets. While past performance can offer insights, it is important to remember that it does not guarantee future results. Diversifying across more sectors and regions could help reduce the impact of future downturns.

Projection Info

Using Monte Carlo simulations, which analyze a wide range of potential future scenarios based on historical data, the portfolio is projected to achieve an annualized return of 14.66%. The simulation suggests a high likelihood of positive returns, with 975 out of 1,000 simulations yielding gains. However, the reliance on historical data means these projections are not foolproof, as they cannot account for unprecedented market events. To improve confidence in potential outcomes, consider stress-testing the portfolio against various economic scenarios and adjusting allocations accordingly.

Asset classes Info

  • Stocks
    95%
  • Bonds
    4%
  • Cash
    1%

The portfolio is heavily skewed towards stocks, comprising over 95% of the total allocation, with minimal exposure to bonds and cash. This concentration in equities suggests a high-risk, high-reward strategy, suitable for investors seeking significant growth. However, the lack of diversification into other asset classes can increase volatility and downside risk. To enhance risk management, consider diversifying into fixed-income securities or other asset classes that typically have lower correlations with equities, thereby potentially smoothing returns and reducing overall portfolio risk.

Sectors Info

  • Technology
    40%
  • Health Care
    12%
  • Telecommunications
    10%
  • Financials
    10%
  • Consumer Discretionary
    6%
  • Industrials
    6%
  • Consumer Staples
    5%
  • Consumer Discretionary
    5%
  • Energy
    4%
  • Basic Materials
    1%
  • Utilities
    1%
  • Real Estate
    1%

The portfolio is highly concentrated in the technology sector, which constitutes nearly 40% of the allocation. This heavy weighting reflects a strong belief in the growth potential of tech companies but also exposes the portfolio to sector-specific risks. Other sectors, such as healthcare and communication services, have moderate representation, while certain sectors like utilities and real estate are underrepresented. To mitigate sector-specific risks and enhance diversification, consider adjusting the allocations to achieve a more balanced sector exposure, thereby reducing the impact of sector downturns.

Regions Info

  • North America
    99%

The portfolio's geographic exposure is overwhelmingly focused on North America, particularly the US, which accounts for over 99% of the allocation. This concentration implies vulnerability to US-specific economic and political risks. While the US market has historically been a strong performer, diversifying into international markets could provide exposure to different economic cycles and growth opportunities. Consider increasing allocations to developed and emerging markets outside North America to enhance geographic diversification and potentially capture growth in other regions.

Redundant positions Info

  • GROWTH AND TAX STRATEGY FUND GROWTH AND TAX STRATEGY FUND
    Schwab S&P 500 Index Fund
    Schwab U.S. Large-Cap Growth ETF
    SCHWAB U.S. LARGE-CAP GROWTH INDEX FUND
    High correlation

Several assets within the portfolio, such as the Schwab S&P 500 Index Fund and the Schwab U.S. Large-Cap Growth ETF, exhibit high correlations with one another. This means they tend to move in tandem, which can reduce the diversification benefits and increase overall portfolio risk. High correlation among assets can lead to amplified losses during market downturns. To improve diversification, consider replacing or reducing exposure to highly correlated assets with those that have lower correlations, thereby enhancing the overall risk-return profile of the portfolio.

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 potentially be optimized using the Efficient Frontier, which involves adjusting the asset allocation to achieve the best possible risk-return ratio. However, the current high correlation among several assets may limit the benefits of optimization. Before attempting to optimize, focus on reducing overlap by removing or reducing highly correlated assets that do not contribute to diversification. By doing so, you can create a more efficient portfolio that better balances risk and return, aligning with your investment goals and risk tolerance.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.70%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • GROWTH AND TAX STRATEGY FUND GROWTH AND TAX STRATEGY FUND 2.00%
  • Weighted yield (per year) 0.93%

The portfolio's dividend yield stands at 0.93%, with the Schwab U.S. Dividend Equity ETF contributing the most at 3.7%. This yield provides a modest income stream, which can be appealing for investors seeking regular cash flow. However, the overall yield is relatively low, reflecting the growth-oriented nature of the portfolio. To increase income potential, consider reallocating some funds into higher-yielding assets or dividend-focused strategies. This could provide a more balanced approach, combining growth potential with steady income.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • SCHWAB U.S. LARGE-CAP GROWTH INDEX FUND 0.04%
  • Schwab S&P 500 Index Fund 0.02%
  • GROWTH AND TAX STRATEGY FUND GROWTH AND TAX STRATEGY FUND 0.51%
  • SCIENCE & TECHNOLOGY FUND SCIENCE & TECHNOLOGY FUND SHARES 0.97%
  • Weighted costs total (per year) 0.22%

The portfolio's total expense ratio (TER) is 0.22%, which is relatively low, indicating cost efficiency. The Schwab S&P 500 Index Fund has the lowest cost at 0.02%, while the Science & Technology Fund is the most expensive at 0.97%. High costs can erode returns over time, so it's crucial to maintain a focus on cost-effective investments. To further improve net returns, consider reviewing the expense ratios of each fund and exploring lower-cost alternatives that offer similar exposure. This approach can help maximize long-term gains by minimizing unnecessary costs.

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