A growth-focused portfolio with high risk and low geographic diversification

Report created on Jan 20, 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 the Vanguard S&P 500 ETF, comprising 60% of the total allocation. This results in a strong emphasis on large-cap U.S. equities. The remaining 40% is split evenly between the Avantis U.S. Small Cap Value ETF and the Schwab U.S. Dividend Equity ETF, adding exposure to small-cap stocks and dividend-paying companies. This composition lacks significant diversification across asset classes, as it is entirely invested in equities. While this focus aligns with a growth-oriented strategy, it may expose the portfolio to heightened volatility compared to a more diversified mix of assets.

Growth Info

Historically, the portfolio has delivered a strong Compound Annual Growth Rate (CAGR) of 16.68%, outperforming many benchmarks. However, it has experienced a maximum drawdown of -36.09%, indicating significant volatility during downturns. The portfolio's performance is concentrated, with just 16 days accounting for 90% of returns. This highlights the importance of timing and market conditions on past results. While these figures are impressive, it's crucial to remember that past performance does not guarantee future results, and the portfolio's volatility suggests that it may not suit risk-averse investors.

Projection Info

The Monte Carlo simulation, which uses historical data to model future outcomes, indicates a wide range of potential results for this portfolio. With 1,000 simulations, the median outcome suggests a 610.4% return, while the 5th percentile projects a more modest 60.1% return. Impressively, 981 simulations resulted in positive returns, with an average annualized return of 17.58%. However, these projections are based on historical trends and assumptions, which may not hold true in the future. Investors should consider this uncertainty when planning long-term financial goals.

Asset classes Info

  • Stocks
    100%

The portfolio's allocation is entirely in equities, offering no diversification across different asset classes like bonds or cash. This focus on stocks is typical for growth-oriented portfolios, aiming for capital appreciation. However, the lack of asset class diversification can increase risk, particularly during market downturns when equities tend to be more volatile. A more balanced allocation including fixed income or other asset classes could potentially reduce volatility and provide more stable returns over time, aligning better with a broader range of investment goals.

Sectors Info

  • Technology
    23%
  • Financials
    17%
  • Consumer Discretionary
    12%
  • Industrials
    11%
  • Health Care
    10%
  • Energy
    8%
  • Consumer Staples
    7%
  • Telecommunications
    7%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    1%

The sector allocation is dominated by technology at 23%, followed by financial services and consumer cyclicals. This concentration in tech could lead to increased volatility, especially in rising interest rate environments where tech stocks can be more sensitive. While the portfolio covers several sectors, it lacks substantial representation in utilities and real estate, which are typically more defensive. A more balanced sector allocation might help mitigate risks associated with overexposure to certain industries, providing a buffer against sector-specific downturns.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is almost entirely concentrated in North America, with 99% exposure. This heavy reliance on the U.S. market limits diversification and increases vulnerability to domestic economic shifts. A more geographically diverse portfolio could reduce risk by spreading investments across different regions, such as Europe or emerging markets, which may offer growth opportunities and act as a hedge against U.S.-specific risks. However, this would also introduce currency risk and other geopolitical factors that should be considered.

Market capitalization Info

  • Large-cap
    34%
  • Mega-cap
    28%
  • Mid-cap
    17%
  • Small-cap
    12%
  • Micro-cap
    9%

The portfolio's market capitalization distribution shows a significant tilt towards large and mega-cap stocks, which together make up 62% of the allocation. This focus provides stability but may limit exposure to the potentially higher growth opportunities found in small and micro-cap stocks. While smaller companies can offer greater upside, they also tend to be more volatile. Balancing exposure across different market capitalizations could enhance diversification and capture growth from a broader range of companies, aligning with a growth-oriented strategy.

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 could potentially benefit from optimization using the Efficient Frontier, which seeks the best possible risk-return ratio. Currently, the allocation is heavily skewed towards U.S. equities, which may not be the most efficient mix. By adjusting the proportions of existing assets, or considering the introduction of new asset classes, the portfolio could achieve a more favorable balance between risk and return. This process involves analyzing historical data and assumptions, which may not predict future performance, but can guide strategic adjustments.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.60%
  • Schwab U.S. Dividend Equity ETF 3.60%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.76%

The portfolio's dividend yield stands at 1.76%, primarily driven by the Schwab U.S. Dividend Equity ETF. This yield is modest but provides some income generation, which can be reinvested to enhance total returns. Dividend-paying stocks can offer stability and act as a hedge against market volatility, appealing to investors seeking both growth and income. However, the focus remains on capital appreciation, and the yield may not be sufficient for those relying on income. Balancing growth with higher-yielding investments could better meet income-focused goals.

Ongoing product costs Info

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

With a Total Expense Ratio (TER) of 0.08%, the portfolio is cost-effective, particularly given its focus on ETFs. Low costs are crucial for enhancing long-term returns, as they reduce the drag on performance. The Vanguard S&P 500 ETF, with the lowest cost at 0.03%, contributes significantly to this efficiency. Keeping expenses low aligns with best practices, allowing more of the portfolio's returns to be retained by the investor. This cost structure is well-aligned with a growth-focused strategy, supporting better compounding over time.

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