A concentrated large-cap growth portfolio with high risk and limited diversification potential

Report created on Jan 19, 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 consists of two ETFs, each making up 50% of the allocation, both focused on U.S. large-cap stocks. This setup results in a concentrated portfolio with a heavy emphasis on large-cap equities, which may not provide sufficient diversification. A typical benchmark might include various asset classes like bonds or international stocks to balance risk. Consider diversifying by adding different asset classes or regions to reduce concentration risk and potentially enhance returns.

Growth Info

Historically, the portfolio has shown strong performance with a Compound Annual Growth Rate (CAGR) of 16.99%. This impressive growth, however, came with a considerable maximum drawdown of -33.37%, indicating significant volatility. Comparing this to a diversified benchmark, the portfolio's returns are higher, but so is the risk. It's crucial to remember that past performance doesn't guarantee future results. Balancing growth with risk management could enhance the portfolio's resilience in future downturns.

Projection Info

Forward projections using Monte Carlo simulations suggest a wide range of potential outcomes, with an average annualized return of 18.37%. Monte Carlo analysis uses historical data to simulate possible future scenarios, but it's important to note these results are not predictions. The high variability in outcomes highlights the portfolio's potential volatility. To mitigate risk, consider strategies like diversification or incorporating assets with lower correlation to existing holdings.

Asset classes Info

  • Stocks
    100%

The portfolio's allocation is heavily skewed towards stocks, comprising over 99% of the assets, with a negligible cash position. This lack of diversity can increase vulnerability to market swings. Benchmarks often include a mix of asset classes, such as bonds or real estate, which can provide stability during market downturns. To improve diversification, consider introducing other asset classes that align with your investment goals and risk tolerance.

Sectors Info

  • Technology
    42%
  • Consumer Discretionary
    12%
  • Telecommunications
    12%
  • Financials
    10%
  • Health Care
    10%
  • Industrials
    5%
  • Consumer Staples
    4%
  • Energy
    2%
  • Basic Materials
    2%
  • Utilities
    1%
  • Real Estate
    1%

Sector allocation is dominated by technology at 41.5%, followed by consumer cyclicals and communication services. While these sectors have driven growth, their concentration can lead to increased volatility, especially during sector-specific downturns. A more balanced sector allocation aligned with benchmarks could mitigate risk. Consider gradually increasing exposure to underrepresented sectors to achieve a more balanced and diversified portfolio.

Regions Info

  • North America
    100%

The portfolio's geographic exposure is overwhelmingly concentrated in North America, at 99.57%. This limited geographic diversification can increase susceptibility to regional economic shifts. Benchmarks typically include a broader mix of regions to spread risk. Consider diversifying into international markets to capture growth opportunities and reduce reliance on a single economy, which could improve overall portfolio stability.

Redundant positions Info

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

The two ETFs in the portfolio are highly correlated, which means they tend to move in the same direction. This high correlation limits the diversification benefits, as both assets are likely to react similarly to market changes. To enhance diversification, consider incorporating assets with lower correlations, which can help reduce overall portfolio risk and provide a cushion during volatile periods.

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 Efficient Frontier concept suggests optimizing the portfolio by adjusting asset weights to achieve the best possible risk-return ratio. However, with only two highly correlated assets, optimization potential is limited. Consider introducing additional, less correlated assets to explore optimization opportunities. This approach could enhance the portfolio's efficiency, balancing risk and return more effectively.

Dividends Info

  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Schwab U.S. Large-Cap ETF 2.60%
  • Weighted yield (per year) 1.50%

The portfolio's average dividend yield is 1.5%, with the large-cap ETF contributing more significantly at 2.6%. While dividends offer a steady income stream, the focus on growth stocks may limit their contribution. For investors seeking income, consider balancing growth with higher-yielding assets. However, if growth is the primary goal, maintaining the current focus may be appropriate, acknowledging the trade-off between income and potential capital appreciation.

Ongoing product costs Info

  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Schwab U.S. Large-Cap ETF 0.03%
  • Weighted costs total (per year) 0.04%

The portfolio's costs are impressively low, with a total expense ratio (TER) of 0.04%. This cost efficiency supports better long-term performance by minimizing the drag on returns. Low costs are a positive aspect of this portfolio, aligning with best practices in investment management. Continue to monitor and compare costs with similar investment options to ensure cost-effectiveness remains a competitive advantage.

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