A growth-focused portfolio with high concentration in North American equities and low diversification

Report created on Jan 4, 2025

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 the Vanguard S&P 500 ETF, which comprises 60% of the total allocation. This dominance suggests a concentrated exposure to large-cap U.S. equities. Complementing this, smaller allocations are made to various sector-specific and dividend-focused ETFs, such as the WisdomTree U.S. Quality Dividend Growth Fund and Schwab U.S. Dividend Equity ETF. Compared to a typical diversified portfolio, this one is more concentrated, especially in U.S. equities. A broader diversification across different asset classes could potentially reduce risk and enhance returns over time.

Growth Info

The portfolio’s historical performance is impressive, with a Compound Annual Growth Rate (CAGR) of 13.99%. This indicates strong growth compared to many benchmarks. However, the maximum drawdown of -34.59% highlights significant volatility, a common trait in growth-focused portfolios. Such volatility could be concerning during market downturns. While past performance is not indicative of future results, understanding these trends can help in managing expectations and preparing for potential market fluctuations.

Projection Info

Using Monte Carlo simulations, which employ historical data to predict future outcomes, the portfolio shows a promising median return of 463.42%. The simulations indicate a high likelihood of positive returns, with 993 out of 1,000 scenarios showing gains. However, it’s important to note that these projections are not guarantees. They merely provide a range of potential outcomes, emphasizing the inherent uncertainty in investing. Regularly reviewing and adjusting the portfolio can help adapt to changing market conditions and personal financial goals.

Asset classes Info

  • Stocks
    100%

This portfolio is almost entirely composed of stocks, with a negligible cash allocation. Such a skew towards equities can offer substantial growth potential but also comes with increased risk, especially during market downturns. Typically, a more balanced mix of asset classes, including bonds or alternative investments, can provide a buffer against volatility. While the current allocation aligns with a growth strategy, considering additional asset classes could enhance diversification and risk management.

Sectors Info

  • Technology
    30%
  • Consumer Discretionary
    15%
  • Financials
    11%
  • Health Care
    9%
  • Industrials
    8%
  • Basic Materials
    7%
  • Telecommunications
    6%
  • Consumer Staples
    5%
  • Energy
    4%
  • Real Estate
    2%
  • Utilities
    2%

The portfolio is heavily concentrated in the technology sector, representing nearly 30% of the allocation. While this has historically driven strong returns, it also introduces sector-specific risk. For instance, tech-heavy portfolios can be more volatile during periods of regulatory scrutiny or interest rate changes. A broader sector diversification, potentially increasing exposure to underrepresented areas like utilities or real estate, could reduce risk and provide more balanced growth opportunities.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

With over 99% exposure to North American markets, the portfolio lacks international diversification. This geographic concentration can lead to vulnerability to region-specific economic downturns or policy changes. Diversifying into other regions, such as Europe or emerging markets, can spread risk and tap into growth opportunities outside the U.S. While the current focus aligns with a strong domestic market, global diversification could enhance long-term stability and growth potential.

Redundant positions Info

  • WisdomTree U.S. Quality Dividend Growth Fund
    Vanguard S&P 500 ETF
    High correlation

The portfolio features highly correlated assets, particularly between the WisdomTree U.S. Quality Dividend Growth Fund and the Vanguard S&P 500 ETF. High correlation means these assets tend to move together, which may limit diversification benefits. During market downturns, this could amplify losses. Reducing correlation by selecting funds with different investment strategies or geographic focuses can enhance diversification and potentially improve risk-adjusted returns.

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.

Before optimizing for the Efficient Frontier, which seeks the best risk-return ratio, addressing high correlations is crucial. The portfolio currently has overlapping assets that do not enhance diversification. By reducing these and reallocating to less correlated investments, the portfolio could achieve a more efficient risk-return balance. Efficient Frontier optimization focuses on maximizing returns for a given level of risk, but it’s important to remember that it doesn't guarantee diversification benefits.

Dividends Info

  • WisdomTree U.S. Quality Dividend Growth Fund 1.50%
  • Schwab U.S. Dividend Equity ETF 3.60%
  • Vanguard Materials Index Fund ETF Shares 1.30%
  • Vanguard Small-Cap Index Fund ETF Shares 1.30%
  • Vanguard Consumer Discretionary Index Fund ETF Shares 0.60%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.31%

The portfolio yields a modest dividend of 1.31%, with notable contributions from the Schwab U.S. Dividend Equity ETF at 3.6%. Dividends provide a steady income stream, which can be particularly beneficial during volatile market periods. For growth-focused investors, reinvesting dividends can compound returns over time. However, balancing between growth and dividend-paying assets is crucial to align with personal income needs and long-term objectives.

Ongoing product costs Info

  • WisdomTree U.S. Quality Dividend Growth Fund 0.28%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard Materials Index Fund ETF Shares 0.10%
  • Vanguard Small-Cap Index Fund ETF Shares 0.05%
  • Vanguard Consumer Discretionary Index Fund ETF Shares 0.10%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.06%

The portfolio maintains impressively low costs, with a Total Expense Ratio (TER) of 0.06%. This is advantageous as lower fees directly contribute to higher net returns over time. Managing costs is a critical aspect of successful investing, as high fees can erode gains, especially in long-term portfolios. Continuing to monitor and minimize expenses will support better performance and align with best investment practices.

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