High Risk Low Diversity Portfolio with Strong US Focus Needs Improved Diversification for Better Balance and Stability

Report created on Dec 2, 2024

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 concentrated, with nearly 97% invested in the Schwab U.S. Broad Market ETF. This indicates a strong reliance on U.S. equities, which can be risky if the U.S. market faces downturns. While the portfolio does include a small percentage in other assets like the Consumer Discretionary Select Sector SPDR® Fund and NVIDIA Corporation, the allocation is minimal. A more balanced composition could provide better risk management. Consider diversifying across different asset types and funds to create a more robust portfolio that can withstand market fluctuations.

Growth Info

Historically, the portfolio has shown a commendable CAGR of 16.36%, indicating strong growth over time. However, it has also experienced a maximum drawdown of -34.97%, which suggests significant volatility. This means that while the portfolio has the potential for high returns, it can also suffer substantial losses. Understanding this balance is crucial for managing expectations and planning for the future. To mitigate the impact of potential downturns, consider strategies that could reduce volatility, such as diversifying into less correlated assets.

Projection Info

A Monte Carlo simulation, which uses random sampling to predict future outcomes, was conducted with 1,000 simulations. The results suggest a wide range of potential outcomes, with the 5th percentile at 403.83% and the 67th percentile at 5,665.43%. This indicates a high level of uncertainty but also a significant upside potential. The portfolio's annualized return across simulations is 34.06%, reflecting strong growth prospects. However, the variability suggests that diversifying the portfolio could help manage risk and provide more predictable returns over time.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely invested in stocks, with over 99% allocation to equities. This heavy concentration in a single asset class increases risk, as it lacks the balance that bonds or other asset classes could provide. A more diversified asset allocation could help cushion against market volatility and provide more stable returns. Consider incorporating a mix of asset classes, such as bonds or real estate, to achieve a more balanced risk-return profile and enhance the portfolio's resilience against market fluctuations.

Sectors Info

  • Technology
    32%
  • Financials
    13%
  • Consumer Discretionary
    12%
  • Health Care
    10%
  • Industrials
    9%
  • Telecommunications
    8%
  • Consumer Staples
    5%
  • Energy
    4%
  • Real Estate
    3%
  • Utilities
    2%
  • Basic Materials
    2%

The sector allocation is heavily weighted towards technology at 31.58%, followed by financial services and consumer cyclicals. While these sectors have strong growth potential, overexposure can lead to increased risk if these industries face downturns. Diversifying across a broader range of sectors could reduce sector-specific risk and provide more stability. A more balanced sector allocation would help mitigate the impact of adverse sector-specific events and contribute to a more resilient portfolio.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is predominantly focused on North America, with 99.27% of assets allocated there. This concentration poses a risk if the North American market underperforms. While there is minimal exposure to Europe, Latin America, and Asia, these allocations are insignificant. Diversifying geographically could help mitigate regional risks and capitalize on growth opportunities in other parts of the world. Consider increasing exposure to international markets to achieve a more balanced and globally diversified portfolio.

Redundant positions Info

  • Schwab U.S. Broad Market ETF
    Schwab U.S. Large-Cap Growth ETF
    High correlation

The portfolio contains highly correlated assets, particularly between the Schwab U.S. Broad Market ETF and the Schwab U.S. Large-Cap Growth ETF. High correlation means these assets tend to move in the same direction, offering little diversification benefit. This could lead to increased volatility during market downturns. To improve diversification, consider reducing exposure to overlapping assets and incorporating investments with lower correlations. This strategy can help achieve a more balanced risk profile and potentially enhance 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 the portfolio, focus on reducing overlapping, highly correlated assets that offer no diversification benefits. By doing so, you can better position the portfolio along the efficient frontier, achieving a more optimal risk-return balance. For a riskier portfolio, consider increasing exposure to growth-oriented assets, while for a more conservative approach, shift towards bonds or other low-risk investments. This strategic reallocation could enhance diversification and improve the portfolio's overall performance, aligning it more closely with your financial goals.

Dividends Info

  • Schwab U.S. Broad Market ETF 1.20%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Consumer Discretionary Select Sector SPDR® Fund 0.70%
  • Weighted yield (per year) 1.18%

The portfolio's dividend yield stands at 1.18%, with the Schwab U.S. Broad Market ETF contributing the most significant portion. While dividends provide a steady income stream, the current yield is relatively modest. Increasing exposure to higher-yielding assets could enhance income potential. However, it's essential to balance the pursuit of yield with the overall risk and growth objectives of the portfolio. Consider diversifying into dividend-paying stocks or funds that align with the portfolio's risk tolerance and investment goals.

Ongoing product costs Info

  • Schwab U.S. Broad Market ETF 0.03%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Consumer Discretionary Select Sector SPDR® Fund 0.09%
  • Weighted costs total (per year) 0.03%

The portfolio's costs are relatively low, with a total expense ratio (TER) of 0.03%. This low cost structure is beneficial, as it allows more of the portfolio's returns to be retained. Keeping investment costs low is a critical component of long-term portfolio success. While the current cost structure is favorable, it's essential to remain vigilant about fees and expenses when making changes to the portfolio. Ensuring that any new investments align with the portfolio's cost objectives will help maintain its efficiency and effectiveness.

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