Moderately diversified growth-focused portfolio with high U.S. exposure and technology concentration

Report created on Dec 8, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

This portfolio is heavily weighted toward ETFs, with a strong focus on the U.S. market. The Vanguard S&P 500 ETF, Schwab U.S. Dividend Equity ETF, and Schwab U.S. Large-Cap Growth ETF collectively make up 85% of the portfolio, indicating a preference for large-cap equities. The inclusion of Defiance Quantum and Intel Corporation adds a technology tilt. This composition suggests a growth-oriented strategy, but the heavy concentration in a few ETFs could limit diversification. To enhance diversification, consider adding different asset classes, such as bonds or international equities, which can provide stability and reduce volatility over time.

Growth Info

Historically, the portfolio has performed well, with a compound annual growth rate (CAGR) of 15.64%. However, it has also experienced significant volatility, as evidenced by a maximum drawdown of -32.82%. This means that while the portfolio has the potential for high returns, it can also suffer substantial losses during market downturns. Considering this, it might be beneficial to incorporate more defensive assets to buffer against such drawdowns, especially if the investor is nearing retirement or has a lower risk tolerance.

Projection Info

The Monte Carlo simulation, which uses historical data to project future outcomes, suggests a wide range of potential returns. With a median expected growth of 333.51% but a 5th percentile downside of -27.66%, the projections highlight the portfolio's risk and return spectrum. This method assumes past trends will continue, which may not hold true in changing economic conditions. To prepare for various scenarios, maintaining a balance between growth and stability is crucial. Diversifying into less correlated assets may help manage risk while capturing upside potential.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly invested in stocks, accounting for nearly 100% of its composition, with a negligible cash allocation. This heavy equity focus aligns with a growth strategy but lacks the risk mitigation offered by other asset classes like bonds or real estate. Diversifying across asset classes can reduce portfolio volatility and provide more consistent returns. Introducing even a small percentage of bonds could offer a cushion during market downturns, improving the overall risk-return profile.

Sectors Info

  • Technology
    37%
  • Financials
    12%
  • Health Care
    11%
  • Consumer Discretionary
    9%
  • Industrials
    8%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Energy
    5%
  • Basic Materials
    1%
  • Utilities
    1%
  • Real Estate
    1%

Technology dominates the sector allocation, representing nearly 37% of the portfolio. While this sector can drive growth, it also introduces concentration risk, especially during periods of tech market volatility. The portfolio does include exposure to other sectors like financial services and healthcare, but these are significantly smaller allocations. To mitigate sector risk, consider rebalancing to achieve a more even distribution across sectors. This can help smooth out returns and protect against sector-specific downturns.

Regions Info

  • North America
    96%
  • Europe Developed
    2%
  • Japan
    1%
  • Asia Developed
    1%

The portfolio's geographic exposure is heavily skewed towards North America, with over 95% of assets allocated there. This concentration limits exposure to international markets, which can offer diversification benefits and opportunities for growth in different economic cycles. Expanding geographic allocation to include more developed and emerging markets could enhance diversification and provide a hedge against U.S.-specific risks. This strategy can also capture growth from regions with different economic drivers.

Redundant positions Info

  • Schwab U.S. Large-Cap Growth ETF
    Vanguard S&P 500 ETF
    High correlation

The high correlation between the Schwab U.S. Large-Cap Growth ETF and the Vanguard S&P 500 ETF indicates that these assets tend to move in tandem, reducing diversification benefits. This correlation implies that during market downturns, both assets may decline simultaneously, increasing portfolio risk. To improve diversification, consider replacing one of these ETFs with an asset that is less correlated with the rest of the portfolio. This could help achieve a more balanced risk-return profile.

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.

Optimizing the portfolio using the Efficient Frontier could improve its risk-return ratio by reallocating assets for maximum efficiency. This involves adjusting the current asset weights to achieve the best possible return for a given level of risk. However, optimization should not be confused with diversification. It's essential to first address the high correlation and concentration issues in the portfolio. Once a more balanced asset mix is achieved, optimization can help fine-tune the portfolio for enhanced performance.

Dividends Info

  • Intel Corporation 1.80%
  • Defiance Quantum 0.70%
  • Schwab U.S. Dividend Equity ETF 2.50%
  • Schwab U.S. Large-Cap Growth ETF 0.30%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.39%

The portfolio's overall dividend yield is 1.39%, with the Schwab U.S. Dividend Equity ETF contributing the most at 2.5%. Dividends can provide a steady income stream, especially during periods of market volatility when capital gains are harder to achieve. While the current yield is modest, increasing exposure to high-dividend-paying stocks or ETFs could enhance income generation. This approach is particularly beneficial for investors seeking regular income without sacrificing growth potential.

Ongoing product costs Info

  • Defiance Quantum 0.40%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.08%

The portfolio's total expense ratio (TER) is relatively low at 0.08%, indicating cost-effective management. This is beneficial as lower costs can significantly enhance long-term returns. However, the Defiance Quantum ETF has a higher expense ratio of 0.4%, which could erode returns over time. Consider reviewing the performance and cost-effectiveness of this ETF compared to alternatives. Reducing high-cost investments or reallocating to lower-cost options can improve net returns and increase portfolio efficiency.

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