Moderately Diversified Growth Portfolio with Strong U.S. Focus and High Historical Returns Suitable for Risk-Tolerant Investors

Report created on Dec 4, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio is composed of seven different ETFs, with a notable 30% allocation to the Vanguard S&P 500 ETF. This indicates a strong focus on large-cap U.S. equities. The remaining allocations spread across small-cap value, dividend equity, total bond market, information technology, total stock market, and emerging markets ETFs. This mix suggests a growth-focused strategy with some diversification across asset classes and sectors. A 10% allocation to bonds provides a modest buffer against market volatility, while the inclusion of emerging markets adds an element of international exposure, albeit limited.

Growth Info

Historically, the portfolio has demonstrated impressive performance with a compound annual growth rate (CAGR) of 15.48%. However, it has also experienced a maximum drawdown of -32.05%, highlighting its susceptibility to market downturns. This performance suggests a strong return potential, but with significant volatility. The fact that 90% of returns are concentrated in just 18 days underscores the importance of staying invested during volatile periods. To manage this risk, maintaining a long-term perspective is crucial, as short-term market fluctuations can be sharp and unpredictable.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio shows a potential future annualized return of 15.56%. This simulation provides a range of possible outcomes, with the 5th percentile at 56.95% and the 67th percentile at 724.76%. These projections suggest that while the portfolio has potential for substantial growth, there is also a possibility for lower returns. Monte Carlo simulations help in understanding the range of potential outcomes by modeling different market scenarios. This reinforces the importance of aligning the portfolio with one's risk tolerance and investment horizon.

Asset classes Info

  • Stocks
    90%
  • Bonds
    10%
  • Cash
    1%

The portfolio is heavily weighted towards stocks, which make up approximately 89.5% of the total allocation. Bonds account for 9.9%, providing some diversification and stability. This asset class distribution aligns with a growth-oriented strategy, aiming for higher returns through equity exposure. However, the high stock allocation increases the portfolio's risk profile. To balance this, consider increasing bond exposure if a more conservative approach is desired. This could help in reducing volatility and providing more consistent returns, especially during market downturns.

Sectors Info

  • Technology
    27%
  • Financials
    15%
  • Consumer Discretionary
    9%
  • Industrials
    9%
  • Health Care
    8%
  • Energy
    6%
  • Consumer Staples
    5%
  • Telecommunications
    5%
  • Basic Materials
    3%
  • Utilities
    1%
  • Real Estate
    1%

The portfolio's sector allocation is dominated by technology at 27.36%, followed by financial services and consumer cyclicals. This indicates a significant tilt towards growth sectors, which can offer high returns but also come with increased volatility. Diversifying sector exposure could reduce risk and enhance stability. Consider spreading investments across more defensive sectors like utilities or consumer staples. This approach can provide a buffer during economic downturns, ensuring that the portfolio is not overly reliant on the performance of a few high-growth sectors.

Regions Info

  • North America
    79%
  • Asia Emerging
    6%
  • Asia Developed
    2%
  • Africa/Middle East
    1%
  • Latin America
    1%

Geographically, the portfolio is heavily concentrated in North America, with 79.28% of assets allocated there. This reflects a strong home bias, which can be beneficial due to familiarity with the market. However, it also limits exposure to international growth opportunities. To enhance diversification and potentially capture higher returns, consider increasing allocations to regions like Asia or Europe. This broader geographic diversification can help mitigate risks associated with economic or political events in a single region, offering a more balanced global exposure.

Redundant positions Info

  • Vanguard S&P 500 ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio includes highly correlated assets, notably the Vanguard S&P 500 ETF and the Vanguard Total Stock Market Index Fund. This correlation suggests limited diversification benefits, as these assets tend to move in tandem. To improve diversification, consider reducing exposure to overlapping assets. By selecting investments with low correlation, the portfolio can achieve better risk-adjusted returns. This strategy helps in spreading risk across different asset classes or sectors, minimizing the impact of adverse movements in any single investment.

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.

Before optimizing, focus on reducing overlapping assets that offer no diversification benefits. By eliminating highly correlated investments, the portfolio can achieve a more balanced risk-return profile. Moving along the efficient frontier, investors can either increase risk for potentially higher returns or reduce risk for more stability. This involves adjusting the asset mix, such as increasing bond allocation for a conservative approach or boosting equities for growth. Prioritize diversification by selecting assets with low correlation, enhancing the portfolio's resilience across various market conditions.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Vanguard Total Bond Market Index Fund ETF Shares 3.30%
  • Schwab U.S. Dividend Equity ETF 3.30%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Vanguard FTSE Emerging Markets Index Fund ETF Shares 2.60%
  • Weighted yield (per year) 1.85%

The portfolio's dividend yield stands at 1.85%, with contributions from various ETFs. The Schwab U.S. Dividend Equity ETF and the Vanguard Total Bond Market Index Fund provide the highest yields at 3.3%. Dividend income can offer a steady cash flow, which is particularly attractive in volatile markets. While the current yield is modest, reinvesting dividends can enhance long-term growth. Consider maintaining or increasing exposure to high-dividend-paying assets to boost income potential. This can provide a cushion during market downturns, contributing to overall portfolio stability.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard FTSE Emerging Markets Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.08%

The portfolio's total expense ratio (TER) is 0.08%, reflecting a cost-efficient structure. Low costs are crucial for maximizing net returns over time. The Avantis® U.S. Small Cap Value ETF has the highest expense ratio at 0.25%, which could be a consideration if seeking to reduce costs further. Keeping investment costs low is a fundamental principle for long-term success. Regularly reviewing and minimizing fees, where possible, can significantly impact cumulative returns. This approach ensures that more of the portfolio's gains are retained, enhancing overall performance.

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