A growth-focused portfolio with a strong US bias and low diversification across sectors and regions

Report created on Dec 13, 2024

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 total of 99.65% in stocks and a minimal cash allocation of 0.35%. The largest positions include the Vanguard Mid-Cap Index Fund and Berkshire Hathaway, accounting for over half of the portfolio. This composition suggests a focus on growth through mid-cap stocks and a significant individual stock holding. The reliance on equities can lead to higher returns but also increased volatility. To balance growth and risk, consider diversifying into other asset classes such as bonds or international equities to reduce potential volatility and enhance stability.

Growth Info

Historically, this portfolio has delivered a strong compound annual growth rate (CAGR) of 13.25%, illustrating its growth potential. However, it has also experienced a significant maximum drawdown of -36.04%, highlighting its vulnerability during market downturns. This indicates that while the portfolio can perform well in bullish markets, it may face substantial losses during bearish periods. To mitigate this risk, consider incorporating assets with lower volatility or those that tend to perform well in downturns, such as defensive stocks or bonds. This could help cushion the portfolio during turbulent times.

Projection Info

Using Monte Carlo simulations, the portfolio's future performance was projected across 1,000 scenarios, with an annualized return of 13.39%. The simulation's 5th percentile indicates a modest return of 2.04%, while the 50th and 67th percentiles show substantial growth at 320.6% and 553.81%, respectively. Monte Carlo simulations leverage historical data to predict a range of outcomes, but they cannot account for future market changes or unprecedented events. To prepare for various scenarios, consider stress-testing the portfolio and assessing its resilience under different market conditions.

Asset classes Info

  • Stocks
    100%

The portfolio's allocation is overwhelmingly skewed towards equities, with negligible cash holdings. This heavy equity concentration suggests a high-risk, high-reward strategy, typical for growth-oriented investors. While stocks offer growth potential, they also increase exposure to market volatility. Introducing other asset classes, such as fixed income or commodities, could provide a buffer against market swings and enhance diversification. This strategy could help in achieving more consistent returns over time, especially during periods of market stress.

Sectors Info

  • Financials
    35%
  • Technology
    22%
  • Industrials
    10%
  • Real Estate
    9%
  • Health Care
    6%
  • Consumer Discretionary
    5%
  • Utilities
    3%
  • Consumer Staples
    3%
  • Energy
    3%
  • Basic Materials
    2%
  • Telecommunications
    2%
  • Consumer Discretionary
    1%

Sector-wise, the portfolio is concentrated in financial services and technology, which together make up over half of the total allocation. This concentration could expose the portfolio to sector-specific risks, such as regulatory changes or technological disruptions. To mitigate these risks, consider reallocating some assets to underrepresented sectors like healthcare or consumer staples, which can offer defensive qualities and stability. A more balanced sectoral approach can enhance the portfolio's resilience against sector-specific downturns and contribute to more stable long-term growth.

Regions Info

  • North America
    99%

The portfolio is heavily concentrated in North American assets, with 99.31% exposure, and minimal allocations to other regions. This geographic focus exposes the portfolio to regional economic and political risks. To enhance geographic diversification, consider increasing exposure to international markets such as Europe or Asia, which can provide growth opportunities and reduce reliance on the US economy. Diversifying geographically can help mitigate regional risks and tap into growth in different parts of the world, enhancing the portfolio's overall resilience.

Redundant positions Info

  • VANGUARD SMALL-CAP INDEX FUND ADMIRAL SHARES
    VANGUARD MID-CAP INDEX FUND ADMIRAL SHARES
    High correlation

The portfolio contains highly correlated assets, particularly between the Vanguard Small-Cap and Mid-Cap Index Funds. High correlation means these assets tend to move in tandem, offering little diversification benefit. To reduce correlation risk, consider replacing one of these funds with assets that have a lower correlation, such as bonds or international equities. This can help reduce overall portfolio volatility and improve the risk-return profile by ensuring that not all assets are affected similarly by market movements.

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 benefit from optimization using the Efficient Frontier, which seeks the best risk-return balance. Current holdings show potential overlap and high correlation, limiting diversification. By adjusting allocations among existing assets, you can aim for the optimal combination that offers the highest expected return for a given level of risk. This process involves reallocating funds to achieve a more efficient portfolio, potentially enhancing returns without increasing risk. Remember, optimization focuses on improving the risk-return ratio, not necessarily diversification.

Dividends Info

  • Medical Properties Trust Inc 9.40%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • VANGUARD MID-CAP INDEX FUND ADMIRAL SHARES 1.40%
  • Vanguard S&P 500 ETF 1.20%
  • VANGUARD SMALL-CAP INDEX FUND ADMIRAL SHARES 1.30%
  • Vanguard Value Index Fund ETF Shares 2.30%
  • Weighted yield (per year) 1.31%

The portfolio offers a modest total dividend yield of 1.31%, with the highest yield from Medical Properties Trust Inc at 9.4%. Dividends can provide a steady income stream, especially in volatile markets, and contribute to total returns. However, the overall yield is relatively low, indicating a focus on capital appreciation rather than income. To enhance income potential, consider incorporating higher-yielding assets or dividend-focused funds. This strategy can provide additional cash flow, which can be reinvested or used to meet income needs.

Ongoing product costs Info

  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • VANGUARD MID-CAP INDEX FUND ADMIRAL SHARES 0.05%
  • Vanguard S&P 500 ETF 0.03%
  • VANGUARD SMALL-CAP INDEX FUND ADMIRAL SHARES 0.05%
  • Vanguard Value Index Fund ETF Shares 0.04%
  • Weighted costs total (per year) 0.04%

The portfolio's total expense ratio (TER) is low at 0.04%, with individual fund costs ranging from 0.03% to 0.1%. Low costs are advantageous as they maximize net returns by reducing the drag on performance. While the current costs are competitive, it's essential to regularly review and compare them with similar investment options. Consider switching to lower-cost alternatives if available, as even small reductions in fees can significantly impact long-term returns. Keeping costs low is a straightforward way to enhance portfolio efficiency.

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