A growth-focused portfolio with significant concentration in US equities and limited global diversification

Report created on Jan 8, 2025

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 weighted towards equities, with a dominant 63% allocation in the Vanguard S&P 500 ETF. This concentration in a single ETF suggests a strong bias towards large-cap US stocks, which might limit diversification benefits. While the portfolio includes other ETFs like Invesco QQQ Trust and Vanguard Small-Cap ETFs, the overall structure leans heavily towards US equities. A common benchmark for a balanced portfolio might include a mix of equities, bonds, and other assets. Consider diversifying into different asset classes to mitigate risk and enhance potential returns.

Growth Info

Historically, the portfolio has performed well, with a Compound Annual Growth Rate (CAGR) of 13.89%. This impressive growth is partly due to the strong performance of US equities in recent years. However, the portfolio also experienced a significant maximum drawdown of -34.16%, indicating vulnerability during market downturns. Comparing this to a benchmark like the S&P 500, which also saw similar volatility, highlights the need for diversification to potentially reduce such drawdowns. While past performance is encouraging, it doesn't guarantee future results, so consider balancing growth with stability.

Projection Info

The Monte Carlo simulation, which uses historical data to project future outcomes, indicates a median potential return of 404.89% over the investment horizon. While 981 out of 1,000 simulations showed positive returns, it's crucial to remember that these projections are based on past data and assumptions. The simulation highlights potential outcomes, but actual future performance can vary due to unforeseen market conditions. Diversifying the portfolio and regularly reassessing asset allocation can help manage risk and potentially improve long-term outcomes.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with a negligible allocation to other asset classes like cash. This heavy equity exposure can lead to higher volatility, especially during market downturns. Common benchmarks often include a mix of stocks, bonds, and alternative investments to balance risk and return. By introducing other asset classes, such as bonds or real estate, the portfolio could benefit from reduced volatility and potentially steadier returns over time. Consider exploring options to diversify asset classes for better risk management.

Sectors Info

  • Technology
    32%
  • Financials
    12%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Industrials
    10%
  • Telecommunications
    9%
  • Consumer Staples
    5%
  • Energy
    3%
  • Real Estate
    3%
  • Utilities
    3%
  • Basic Materials
    2%

The portfolio is notably concentrated in the technology sector, which accounts for nearly 32% of the allocation. While this sector has driven significant growth in recent years, it can also be subject to higher volatility, especially during interest rate changes. Other sectors like financial services and consumer cyclicals are also well-represented, but the overall balance might expose the portfolio to sector-specific risks. Aligning sector allocation more closely with benchmarks could enhance diversification and reduce potential volatility.

Regions Info

  • North America
    97%
  • Europe Developed
    2%

Geographically, the portfolio is heavily skewed towards North America, with over 96% allocation. This concentration limits exposure to international markets, which can provide diversification benefits and reduce region-specific risks. While developed markets like Europe and Japan are slightly represented, emerging markets are underrepresented. A more balanced geographic allocation could help capture growth opportunities in global markets and mitigate risks associated with economic downturns in any single region.

Redundant positions Info

  • Vanguard Small-Cap Growth Index Fund ETF Shares
    Vanguard Mid-Cap Growth Index Fund ETF Shares
    High correlation
  • Vanguard S&P 500 ETF
    Vanguard Total World Stock Index Fund ETF Shares
    High correlation

The portfolio contains highly correlated assets, such as the Vanguard Small-Cap Growth and Mid-Cap Growth ETFs. High correlation means these assets tend to move together, reducing the diversification benefits during market downturns. For effective risk management, it's beneficial to include assets with low correlation, which can stabilize returns when others are volatile. Consider reassessing the portfolio to identify and reduce overlapping assets, potentially replacing them with less correlated options to improve diversification.

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 asset mix could be optimized using the Efficient Frontier, which seeks the best risk-return trade-off. However, optimization should first address the high correlation among certain assets, as reducing overlap can enhance diversification. The Efficient Frontier focuses on achieving the highest possible return for a given level of risk, but it doesn't necessarily account for other factors like diversification. Rebalancing within the existing asset pool could improve efficiency and better align the portfolio with investment goals.

Dividends Info

  • Invesco QQQ Trust 0.60%
  • Vanguard Small-Cap Growth Index Fund ETF Shares 0.40%
  • Vanguard Small-Cap Value Index Fund ETF Shares 1.40%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Mid-Cap Growth Index Fund ETF Shares 0.50%
  • Vanguard Total World Stock Index Fund ETF Shares 1.90%
  • Weighted yield (per year) 1.10%

The portfolio's dividend yield stands at 1.1%, with contributions from various ETFs like the Vanguard S&P 500 ETF at 1.2%. While dividends can provide a steady income stream, the focus on growth-oriented ETFs suggests capital appreciation is the primary goal. For those seeking income, increasing the allocation to higher-yielding assets could be beneficial. However, it's essential to balance income with growth potential, ensuring the portfolio aligns with long-term investment objectives.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • Vanguard Small-Cap Growth Index Fund ETF Shares 0.07%
  • Vanguard Small-Cap Value Index Fund ETF Shares 0.07%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Mid-Cap Growth Index Fund ETF Shares 0.07%
  • Vanguard Total World Stock Index Fund ETF Shares 0.07%
  • Weighted costs total (per year) 0.06%

The portfolio's total expense ratio (TER) is impressively low at 0.06%, with the Vanguard S&P 500 ETF being particularly cost-effective at 0.03%. Low costs are advantageous as they enhance net returns over time. While the Invesco QQQ Trust has a higher fee at 0.2%, the overall cost structure is commendable. Continually monitoring and minimizing costs can significantly impact long-term performance. Consider evaluating whether any high-fee assets can be replaced with lower-cost alternatives without sacrificing performance.

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