A growth-focused portfolio with high risk and low diversification in US equities

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

Growth Investors

This portfolio suits an investor with a growth focus and moderate to high risk tolerance, seeking to capitalize on US equity performance. The high concentration in equities and low diversification suggest a preference for potential high returns over stability. Ideal for those with a long-term investment horizon, it prioritizes capital appreciation. However, such an investor should be comfortable with market volatility and consider diversifying to manage risk better. Regular rebalancing and risk assessment are crucial to align with evolving financial goals.

Positions

  • Vanguard S&P 500 ETF
    VOO - US9229083632
    50.00%
  • Vanguard Total Stock Market Index Fund ETF Shares
    VTI - US9229087690
    50.00%

This portfolio consists of two ETFs: the Vanguard S&P 500 ETF and the Vanguard Total Stock Market Index Fund ETF Shares, each making up 50% of the portfolio. This composition reflects a strong focus on US equities, with a low diversification score of 2 out of 5. A more diversified portfolio typically includes a mix of asset classes, such as bonds or international stocks. By concentrating on these two ETFs, the portfolio may be exposed to higher volatility due to lack of diversification across different asset classes or geographies. Consider introducing different asset types to mitigate risk.

Growth Info

Historically, the portfolio has shown a strong CAGR of 12.03%, indicating robust growth over time. This performance is commendable, especially when compared to typical benchmarks. However, the portfolio experienced a maximum drawdown of -34.48%, highlighting its vulnerability during market downturns. This volatility is expected given the high concentration in equities. While past performance is not indicative of future results, it underscores the importance of balancing risk and reward. To enhance stability, consider diversifying into less volatile assets or defensive sectors.

Projection Info

Monte Carlo simulations, which use historical data to project potential outcomes, suggest a median portfolio growth of 342.6% over the analysis period. While 988 out of 1,000 simulations show positive returns, the reliance on historical data means these projections are not guaranteed. The simulations indicate a potential for high returns, but also emphasize the importance of considering worst-case scenarios, as seen in the 5th percentile projection of 39.9%. It's crucial to maintain a balanced perspective and consider diversifying to manage risk.

Asset classes Info

  • Stocks
    100%
  • Cash
    0%

The portfolio is heavily concentrated in stocks, with 100% allocation to equities. This lack of asset class diversity can lead to increased risk, especially during market downturns. In contrast, a more balanced portfolio might include bonds or alternative investments, which can provide stability and reduce overall volatility. By introducing other asset classes, investors can potentially achieve a smoother ride over varying market conditions. Consider reallocating a portion of the portfolio to fixed-income securities or other non-correlated assets.

Sectors Info

  • Technology
    31%
  • Financials
    14%
  • Consumer Discretionary
    11%
  • Health Care
    11%
  • Telecommunications
    9%
  • Industrials
    8%
  • Consumer Staples
    6%
  • Energy
    3%
  • Utilities
    3%
  • Real Estate
    2%
  • Basic Materials
    2%

The portfolio has a significant exposure to the technology sector, comprising 31% of the total allocation. While tech stocks have driven substantial growth in recent years, they can also be more volatile, especially during periods of interest rate hikes. The portfolio's sector allocation aligns with common benchmarks, but the heavy tech focus suggests a potential for increased volatility. To mitigate this, consider diversifying into sectors that may perform well in different economic conditions, such as consumer defensive or utilities.

Regions Info

  • North America
    99%
  • Europe Developed
    0%
  • Asia Developed
    0%
  • Latin America
    0%
  • Asia Emerging
    0%
  • Africa/Middle East
    0%

Geographically, the portfolio is almost entirely focused on North America, with 99% of assets allocated there. This regional concentration can expose the portfolio to risks specific to the US market. In contrast, a more geographically diverse portfolio might include exposure to Europe, Asia, or emerging markets, which can offer growth opportunities and reduce regional risk. By expanding geographic exposure, investors can potentially enhance diversification and capitalize on global economic trends.

Market capitalization Info

  • Mega-cap
    44%
  • Large-cap
    32%
  • Mid-cap
    19%
  • Small-cap
    4%
  • Micro-cap
    1%

The portfolio's market capitalization allocation is skewed towards mega and big-cap stocks, with 44% and 32% respectively. This focus on larger companies can provide stability and liquidity but may limit the potential for outsized gains often found in smaller-cap stocks. Including a higher allocation to small and medium-cap stocks could enhance growth potential and diversification. However, smaller companies can be more volatile, so it's important to balance these allocations based on individual risk tolerance.

Redundant positions Info

  • Vanguard Total Stock Market Index Fund ETF Shares
    Vanguard S&P 500 ETF
    High correlation

The portfolio's assets, the Vanguard S&P 500 ETF and the Vanguard Total Stock Market Index Fund ETF, are highly correlated. This means they tend to move in the same direction, limiting the diversification benefits. In times of market stress, highly correlated assets may not provide the desired risk reduction. To improve diversification, consider including assets with lower correlation, such as international equities or bonds, which can move independently of US stocks and help manage risk.

Dividends Info

  • Vanguard S&P 500 ETF 1.40%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.40%
  • Weighted yield (per year) 1.40%

With a total dividend yield of 1.40%, the portfolio provides a modest income stream. While dividends can enhance total returns, this yield is relatively low compared to income-focused investments. For growth-oriented investors, dividends are a secondary consideration. However, if income generation becomes a priority, consider reallocating to higher-yielding assets. Balancing growth and income needs is essential for aligning the portfolio with long-term financial goals.

Ongoing product costs Info

  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.03%

The portfolio's costs are impressively low, with a Total Expense Ratio (TER) of 0.03%. These minimal fees support better long-term performance by reducing the drag on returns. Low costs are a key advantage of using index ETFs and align well with best practices for cost-efficient investing. Maintaining this low-cost structure is beneficial, but always ensure that it doesn't compromise diversification or risk management. Regularly review cost structures to ensure continued alignment with investment objectives.

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 can potentially be optimized using the Efficient Frontier, which seeks the best possible risk-return ratio. However, the current high correlation between assets limits diversification benefits. By introducing less correlated assets, the portfolio's efficiency can be improved, potentially achieving higher returns without increasing risk. The optimal portfolio identified has an expected return of 12.35% with a risk level of 18.01%. Consider rebalancing to achieve a more efficient allocation.

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