Heavily concentrated portfolio in US large-cap equities with minimal diversification
Report created on Apr 10, 2025Risk profile
5/7
Diversification profile
2/5
Positions
-
VO Vanguard S&P 500 ETF
VOO - US9229083632 90.00% -
VT Vanguard Total Stock Market Index Fund ETF Shares
VTI - US9229087690 10.00%
The portfolio is dominated by the Vanguard S&P 500 ETF, which comprises 90% of the holdings, while the remaining 10% is allocated to the Vanguard Total Stock Market Index Fund ETF Shares. This composition indicates a strong focus on large-cap U.S. equities, which may not provide the diversification benefits typically sought in a growth-oriented portfolio. A more balanced allocation across various asset classes could help mitigate risk and potentially enhance returns over time.
Growth
Historically, the portfolio has delivered a robust Compound Annual Growth Rate (CAGR) of 12.98%, indicating strong past performance. However, this comes with a maximum drawdown of -34.10%, highlighting potential volatility. The portfolio's performance has been largely driven by a small number of days, emphasizing the importance of timing in returns. Comparing this to a benchmark like the S&P 500, which has a similar composition, the performance aligns well, but diversification could improve stability.
Projection
The Monte Carlo simulation, which uses historical data to predict future outcomes, suggests a wide range of potential returns. With a 50th percentile end portfolio value of 412.6% and an annualized return of 13.73%, the outlook is optimistic. However, it's crucial to remember that simulations are based on past data and cannot guarantee future performance. Expanding the portfolio's geographic and sector exposure could potentially reduce risk and improve future projections.
Asset classes
- Stocks 100%
The portfolio is entirely invested in stocks, lacking exposure to other asset classes such as bonds or real estate. While stocks offer growth potential, they also come with higher risk. Incorporating different asset classes can provide a buffer during market downturns, enhancing overall portfolio resilience. A diversified mix of asset classes is typically recommended for a growth-oriented strategy to balance risk and return.
Sectors
- Technology 32%
- Financials 14%
- Consumer Discretionary 12%
- Health Care 11%
- Telecommunications 10%
- Industrials 8%
- Consumer Staples 5%
- Energy 3%
- Utilities 3%
- Real Estate 2%
- Basic Materials 2%
The sector allocation shows a heavy concentration in technology (32%), followed by financial services and consumer cyclicals. Such a tech-heavy allocation might lead to higher volatility, especially during interest rate hikes or sector-specific downturns. Aligning sector weights more closely with a diversified benchmark could help manage sector-specific risks and enhance stability.
Regions
- North America 99%
With 99% of the portfolio allocated to North America, there's limited geographic diversification. This concentration exposes the portfolio to regional economic risks and misses opportunities in other markets. Increasing exposure to international equities, particularly in emerging markets, could enhance diversification and potentially improve returns by capturing global growth opportunities.
Market capitalization
- Mega-cap 46%
- Large-cap 34%
- Mid-cap 18%
- Small-cap 1%
The portfolio's market capitalization is skewed towards mega and big-cap stocks, with minimal exposure to small and micro-cap companies. While large-cap stocks offer stability, smaller companies can provide higher growth potential. Balancing the allocation across different market caps could improve diversification and offer growth opportunities from emerging companies.
Redundant positions
-
High correlationVanguard S&P 500 ETFVanguard Total Stock Market Index Fund ETF Shares
The assets within the portfolio are highly correlated, meaning they tend to move together. This reduces the diversification benefits, as similar assets may decline simultaneously during market downturns. Reducing correlation by including less correlated assets can help manage risk and improve overall portfolio resilience in volatile markets.
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's current composition may not be optimized according to the Efficient Frontier, which seeks the best possible risk-return ratio. By adjusting the allocation among existing assets, or introducing new ones, the portfolio could potentially achieve a more favorable risk-return balance. This approach focuses on maximizing returns for a given level of risk, rather than simply pursuing diversification.
Dividends
- Vanguard S&P 500 ETF 1.40%
- Vanguard Total Stock Market Index Fund ETF Shares 1.40%
- Weighted yield (per year) 1.40%
The portfolio's dividend yield stands at 1.40%, which is relatively modest. While dividends can provide a steady income stream, the focus here is primarily on growth. Investors seeking income might consider adding higher-yielding investments to balance growth with income generation. However, maintaining a growth focus aligns with the portfolio's primary objective.
Ongoing product costs
- 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 benefits from impressively low costs, with a Total Expense Ratio (TER) of just 0.03%. This cost efficiency supports better long-term performance by minimizing expenses that can erode returns. Maintaining low costs is crucial for maximizing net returns, especially in a growth-focused portfolio where every percentage point counts.
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