Growth-Oriented Portfolio: Broad Diversification with Strong Historical Performance and High Correlation Among Assets

Report created on Jul 10, 2024

Risk profile

  • Secure
    Speculative

The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.

Diversification profile

  • Focused
    Diversified

The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.

Positions

The portfolio is composed of five different ETFs, making it broadly diversified. The Vanguard Total World Stock Index Fund ETF Shares takes the largest share at 50%, followed by the Avantis U.S. Small Cap Value ETF and the Vanguard S&P 500 ETF at 15% each. The Schwab U.S. Dividend Equity ETF and Invesco S&P 500 Momentum ETF round out the portfolio with 10% each. This composition suggests a focus on growth with a significant weighting towards global and U.S. equities, providing a solid foundation for long-term capital appreciation.

Growth Info

The historical performance of this portfolio is impressive, with a compound annual growth rate (CAGR) of 15.76%. This indicates strong past returns, though it's important to note the maximum drawdown of -35.48%, which highlights the potential for significant short-term losses. The portfolio's returns are concentrated in a small number of days, with 90% of returns occurring in just 16 days. This suggests a volatile performance pattern, which can be typical of growth-oriented portfolios and should be considered when evaluating future expectations.

Projection Info

A Monte Carlo simulation, which is a statistical method used to predict the probability of different outcomes, was conducted with 1,000 simulations. Assuming a hypothetical initial investment, the analysis shows a 50th percentile end value of 743.42%, indicating a robust potential for future growth. The annualized return across all simulations is 18.52%, suggesting a favorable outlook. However, with 991 simulations showing positive returns, there's still a small chance of underperformance, emphasizing the importance of considering risk tolerance in investment decisions.

Asset classes Info

  • Stocks
    100%

The asset class distribution is heavily skewed towards stocks, accounting for 99.55% of the portfolio. This is typical for a growth-oriented portfolio aiming for capital appreciation. A small allocation to cash and other categories exists but is negligible. This heavy stock allocation can lead to higher returns but also increases exposure to market volatility. It's essential to understand that while this allocation can drive growth, it may not align with more conservative investment goals, which typically require a more balanced approach with bonds or other fixed-income securities.

Sectors Info

  • Technology
    21%
  • Financials
    19%
  • Industrials
    12%
  • Consumer Discretionary
    12%
  • Health Care
    10%
  • Telecommunications
    7%
  • Consumer Staples
    6%
  • Energy
    6%
  • Basic Materials
    4%
  • Real Estate
    2%
  • Utilities
    2%

The sector allocation is diverse, with significant exposure to technology, financial services, and industrials. Technology leads the way at 21.42%, reflecting its strong growth potential. Financial services and industrials also contribute substantially, offering a mix of stability and growth. Other sectors like healthcare and consumer cyclicals provide additional diversification. This allocation suggests a focus on sectors with robust growth prospects, though it's important to regularly review sector performance to ensure alignment with overall investment goals and risk tolerance.

Regions Info

  • North America
    82%
  • Europe Developed
    8%
  • Asia Emerging
    3%
  • Japan
    3%
  • Asia Developed
    2%
  • Australasia
    1%
  • Latin America
    1%
  • Africa/Middle East
    1%

Geographically, the portfolio is heavily weighted towards North America, which makes up 81.74% of the allocation. This focus on the U.S. market is typical for many portfolios, given its size and economic influence. However, the portfolio also includes exposure to Europe Developed, Asia Emerging, and Japan, adding a layer of international diversification. While this geographic distribution provides some global exposure, it may benefit from further diversification to mitigate region-specific risks and capitalize on growth opportunities in other parts of the world.

Redundant positions Info

  • Invesco S&P 500® Momentum ETF
    Vanguard Total World Stock Index Fund ETF Shares
    Vanguard S&P 500 ETF
    High correlation

The portfolio contains several highly correlated assets, particularly among the Invesco S&P 500 Momentum ETF, Vanguard Total World Stock Index Fund ETF Shares, and Vanguard S&P 500 ETF. High correlation means these assets tend to move in the same direction, which can amplify both gains and losses. While this can be advantageous in a rising market, it also increases risk during downturns. To minimize risk, consider diversifying with less correlated assets, which can help stabilize returns and reduce the impact of market volatility on the overall portfolio.

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 optimization chart indicates that users should refrain from optimizing the portfolio further due to the presence of highly correlated assets. Instead, focus on understanding how moving along the efficient frontier can help achieve a riskier or more conservative portfolio. By adjusting the allocation between high-risk and low-risk assets, investors can tailor the portfolio to better align with their risk tolerance and financial goals. Exploring different combinations can provide insights into potential improvements without immediate optimization.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Schwab U.S. Dividend Equity ETF 3.40%
  • Invesco S&P 500® Momentum ETF 0.40%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total World Stock Index Fund ETF Shares 1.80%
  • Weighted yield (per year) 1.68%

With a total yield of 1.68%, the portfolio provides a modest income stream through dividends. The Schwab U.S. Dividend Equity ETF offers the highest yield at 3.4%, contributing significantly to the portfolio's overall yield. The Avantis U.S. Small Cap Value ETF and Vanguard Total World Stock Index Fund ETF Shares also add to the dividend income, albeit at lower rates. While dividends can enhance total returns, this portfolio's primary focus remains on capital growth. Investors seeking higher income may need to adjust their strategy accordingly.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Invesco S&P 500® Momentum ETF 0.13%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total World Stock Index Fund ETF Shares 0.07%
  • Weighted costs total (per year) 0.10%

The total expense ratio (TER) of the portfolio is 0.1%, which is relatively low and advantageous for long-term investors. Lower costs mean more of the portfolio's returns are retained, enhancing overall performance. The Vanguard S&P 500 ETF and Schwab U.S. Dividend Equity ETF have particularly low expense ratios, contributing to the portfolio's cost-effectiveness. Keeping investment costs down is a crucial aspect of maximizing returns, and this portfolio's cost structure aligns well with that principle, supporting its growth-oriented strategy.

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