High Growth Potential with Low Diversification and Moderate Risk in USA-Centric Portfolio

Report created on Jun 13, 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 consists of four ETFs, with a significant focus on the Vanguard S&P 500 ETF, which makes up 50% of the portfolio. Other notable positions include the Schwab U.S. Dividend Equity ETF at 20%, Avantis U.S. Small Cap Value ETF at 15%, and Vanguard Information Technology Index Fund ETF at 15%. This composition indicates a strong emphasis on large-cap U.S. equities, with a moderate allocation to small-cap and technology stocks. The current asset allocation suggests a growth-oriented strategy with limited diversification across asset classes and sectors.

Growth Info

Historically, the portfolio has demonstrated a robust performance with a compound annual growth rate (CAGR) of 18.39%. However, it has experienced a maximum drawdown of -35.1%, indicating significant volatility. The days that account for 90% of returns are just 18, highlighting that a few days contribute to most of the gains. This performance suggests that while the portfolio can yield substantial returns, it is also susceptible to market downturns. Investors should be prepared for potential fluctuations and consider strategies to mitigate risks.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio shows promising forward projections. Assuming a hypothetical initial investment, the median scenario (50th percentile) projects a growth of 1,021.17%, with a 67th percentile projection of 1,534.97%. The annualized return across all simulations is 21.62%, with 995 simulations yielding positive returns. This analysis provides a probabilistic view of future performance, which is crucial for understanding potential outcomes and planning for different market conditions.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, with 99.86% in equities and a negligible 0.14% in cash. This concentration in a single asset class aligns with a growth-oriented strategy, aiming for capital appreciation. However, such a skewed allocation increases exposure to market volatility. Diversifying into other asset classes, like bonds or real estate, could help balance risk and provide more stable returns. Investors should assess their risk tolerance and consider incorporating other asset classes to enhance diversification.

Sectors Info

  • Technology
    34%
  • Financials
    15%
  • Consumer Discretionary
    10%
  • Industrials
    9%
  • Health Care
    9%
  • Energy
    6%
  • Consumer Staples
    6%
  • Telecommunications
    6%
  • Basic Materials
    2%
  • Utilities
    1%
  • Real Estate
    1%

Sector allocation is predominantly focused on technology, which constitutes 34.48% of the portfolio, followed by financial services at 14.88%. Other sectors, such as consumer cyclicals and industrials, have moderate representation, while utilities and real estate are minimally included. This sector concentration can lead to increased volatility if the technology sector underperforms. To mitigate sector-specific risks, consider spreading investments across a broader range of sectors, ensuring a balanced exposure that aligns with long-term objectives.

Regions Info

  • North America
    99%

The portfolio's geographic allocation is overwhelmingly concentrated in North America, accounting for 99.12% of the holdings. Minimal exposure exists in other regions, such as Europe and Asia. This geographic concentration may limit the portfolio's ability to capitalize on growth opportunities in international markets. Diversifying geographically can reduce region-specific risks and capture potential gains from emerging markets. Investors should evaluate their comfort level with global exposure and consider diversifying to enhance the portfolio's resilience.

Redundant positions Info

  • Vanguard S&P 500 ETF
    Vanguard Information Technology Index Fund ETF Shares
    High correlation

The portfolio exhibits high correlation between the Vanguard S&P 500 ETF and the Vanguard Information Technology Index Fund ETF. This overlap reduces the diversification benefits, as both assets tend to move in tandem. Such correlations can amplify risk during market downturns. To optimize diversification, consider replacing or reducing positions in correlated assets. By introducing less correlated investments, the portfolio can achieve a more balanced risk-return profile, potentially enhancing overall performance.

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, addressing the high correlation between assets is crucial. The portfolio can be optimized by reducing positions in overlapping assets, enhancing diversification. By moving along the efficient frontier, investors can achieve a riskier or more conservative portfolio. A riskier portfolio might increase exposure to high-growth sectors, while a conservative one could incorporate more stable, income-generating assets. Focusing on diversification and managing correlations will better position the portfolio for varying market conditions.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Schwab U.S. Dividend Equity ETF 3.40%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.60%

The portfolio's dividend yield stands at 1.6%, with the Schwab U.S. Dividend Equity ETF contributing the highest yield of 3.4%. This yield provides a modest income stream, complementing the growth-focused strategy. While dividends can offer stability during volatile periods, the current yield may not be sufficient for those seeking substantial income. Investors focused on income generation might explore higher-yielding assets or strategies that prioritize dividend growth, ensuring alignment with income objectives.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.08%

The portfolio's total expense ratio (TER) is 0.08%, indicating a cost-effective investment approach. The Vanguard S&P 500 ETF has the lowest expense ratio at 0.03%, while the Avantis U.S. Small Cap Value ETF has the highest at 0.25%. Keeping investment costs low is crucial for maximizing returns over the long term. While the current costs are competitive, investors should remain vigilant about expense ratios and consider lower-cost alternatives if available, ensuring that costs do not erode potential gains.

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