A highly concentrated portfolio with a strong focus on US equities and minimal international exposure

Report created on Jan 16, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

This portfolio is heavily concentrated in the Vanguard 500 Index Fund, making up over 91% of its composition. This creates a significant reliance on the performance of large-cap US stocks. While this fund is a solid choice for tracking the S&P 500, the limited allocation to the Vanguard Total International Stock Index Fund and the Vanguard Target Retirement 2050 Fund suggests low diversification. A more balanced portfolio often includes a mix of domestic and international equities, bonds, and alternative assets to spread risk and capture growth from different market segments.

Growth Info

Historically, the portfolio has demonstrated strong performance with a CAGR of 13.71%, which is impressive. However, it's important to note the max drawdown of -33.66%, indicating vulnerability during market downturns. This performance metric serves as a reminder that while past returns can be indicative of potential, they are not guaranteed. Comparing this to a benchmark like the S&P 500 can provide context, as similar funds have experienced comparable drawdowns during volatile periods. To mitigate risk, consider diversifying into less correlated assets.

Projection Info

Forward projections using Monte Carlo simulations suggest a wide range of potential outcomes, with a median return of 248.05%. This method uses historical data to simulate future performance, providing a probabilistic view of returns. While the median projection is promising, it's crucial to understand that simulations are based on past trends and cannot predict future events with certainty. The high proportion of simulations with positive returns indicates potential, but it also underscores the importance of diversification to buffer against unexpected market shifts.

Asset classes Info

  • Stocks
    99%
  • Bonds
    1%

The portfolio is overwhelmingly invested in stocks, accounting for over 99% of the allocation, with minimal exposure to bonds and cash. This heavy reliance on equities can lead to higher volatility, especially in turbulent markets. A more diversified asset class allocation typically includes a mix of stocks, bonds, and cash to balance risk and reward. Introducing bonds or other fixed-income securities could provide stability and income, especially during periods of equity market downturns, aligning with a balanced risk profile.

Sectors Info

  • Technology
    32%
  • Financials
    13%
  • Health Care
    11%
  • Consumer Discretionary
    10%
  • Telecommunications
    9%
  • Industrials
    8%
  • Consumer Staples
    6%
  • Energy
    3%
  • Utilities
    3%
  • Real Estate
    2%
  • Basic Materials
    2%

Sector allocation reveals a significant tilt towards technology, making up over 32% of the portfolio. While tech stocks have driven growth in recent years, they also come with higher volatility, particularly during interest rate hikes. The portfolio's sector composition is otherwise balanced, with exposure to financial services, healthcare, and consumer cyclical sectors. However, the heavy tech concentration suggests a need for diversification across more stable sectors, such as consumer defensive or utilities, to mitigate risks associated with sector-specific downturns.

Regions Info

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

Geographically, the portfolio is predominantly focused on North America, with over 95% allocation. This concentration limits exposure to international markets, which can offer growth opportunities and diversification benefits. A more geographically balanced portfolio might include greater allocations to developed and emerging markets outside North America. Such diversification can help mitigate regional risks and provide exposure to different economic cycles, potentially enhancing returns while reducing portfolio volatility.

Redundant positions Info

  • VANGUARD TARGET RETIREMENT 2050 FUND INVESTOR SHARES
    VANGUARD 500 INDEX FUND ADMIRAL SHARES
    High correlation

The portfolio's assets are highly correlated, particularly between the Vanguard 500 Index Fund and the Vanguard Target Retirement 2050 Fund. High correlation means these assets tend to move together, which can limit diversification benefits and increase risk during market downturns. A diversified portfolio should aim for low correlation among its components to spread risk effectively. Consider introducing assets with lower correlation to existing holdings, such as international equities or bonds, to improve risk management and enhance portfolio stability.

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 benefit from optimization using the Efficient Frontier, which aims to achieve the best possible risk-return ratio. Currently, the high concentration and correlation of assets limit potential diversification benefits. By adjusting the allocation among existing assets or introducing new, less correlated investments, the portfolio's efficiency could be improved. This optimization process focuses on maximizing returns for a given level of risk, ensuring that the portfolio is well-positioned to meet the investor's goals without unnecessary exposure to volatility.

Dividends Info

  • VANGUARD 500 INDEX FUND ADMIRAL SHARES 1.20%
  • VANGUARD TOTAL INTERNATIONAL STOCK INDEX FUND ADMIRAL SHARES 3.30%
  • Weighted yield (per year) 1.14%

The portfolio's dividend yield is relatively low at 1.14%, primarily driven by the Vanguard 500 Index Fund. While dividends can provide a steady income stream, high-growth portfolios often focus more on capital appreciation than income. For investors seeking income, increasing exposure to dividend-focused funds or stocks could be beneficial. However, it's important to balance this with growth opportunities, ensuring that the portfolio aligns with long-term investment goals and risk tolerance.

Ongoing product costs Info

  • VANGUARD 500 INDEX FUND ADMIRAL SHARES 0.04%
  • VANGUARD TARGET RETIREMENT 2050 FUND INVESTOR SHARES 0.08%
  • VANGUARD TOTAL INTERNATIONAL STOCK INDEX FUND ADMIRAL SHARES 0.12%
  • Weighted costs total (per year) 0.04%

Portfolio costs are impressively low, with a total expense ratio (TER) of 0.04%, primarily due to the Vanguard 500 Index Fund's low fees. Keeping costs low is crucial for long-term performance, as high fees can erode returns over time. This cost efficiency aligns well with best practices in portfolio management, ensuring that more of the investment returns are retained. Continuously monitoring and managing costs can further enhance the portfolio's performance, especially if additional funds or asset classes are introduced.

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