A growth-focused portfolio with concentrated US equity exposure and limited diversification

Report created on Jan 3, 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 concentrated in US equity index funds, with 61% in the Vanguard 500 Index Fund and 33% in the Vanguard Growth Index Fund. This composition suggests a strong focus on large-cap US stocks. While such a focus can offer stability and growth potential, it may also limit diversification. Typically, a balanced portfolio might include a mix of equities, bonds, and other asset classes. To enhance diversification, consider adding more varied asset types. This could help mitigate risks associated with market downturns, as different asset classes often react differently to economic changes.

Growth Info

Historically, the portfolio has performed well, achieving a compound annual growth rate (CAGR) of 14.85%. This impressive growth rate indicates strong past performance, especially when compared to the S&P 500's average returns. However, the maximum drawdown of -33.02% highlights potential volatility. It's important to remember that past performance does not guarantee future results. To maintain growth while managing risk, consider strategies that can protect against significant downturns, such as incorporating more defensive assets or diversifying across more sectors.

Projection Info

Forward projections using Monte Carlo simulations show a wide range of potential outcomes, with a 50th percentile return of 388.03%. Monte Carlo simulations use historical data to predict future performance by running thousands of scenarios. While these projections are useful, they are not foolproof, as they rely on past data, which may not reflect future market conditions. To prepare for various outcomes, consider a dynamic strategy that allows for adjustments based on market changes, ensuring your portfolio remains aligned with your goals.

Asset classes Info

  • Stocks
    99%

The portfolio is overwhelmingly invested in equities, with 99.33% in stocks and minimal exposure to bonds and cash. This heavy equity allocation suggests a high-risk, high-reward approach, suitable for those with a long investment horizon and a higher risk tolerance. However, such concentration can increase vulnerability to market volatility. To reduce risk, consider diversifying into other asset classes like bonds or real estate, which can provide stability and income during market downturns, balancing the overall risk-reward profile of the portfolio.

Sectors Info

  • Technology
    38%
  • Consumer Discretionary
    12%
  • Financials
    11%
  • Telecommunications
    10%
  • Health Care
    10%
  • Industrials
    6%
  • Consumer Staples
    5%
  • Energy
    3%
  • Real Estate
    2%
  • Basic Materials
    2%
  • Utilities
    2%

The portfolio is heavily weighted towards the technology sector, constituting 37.74% of the total allocation. This tech-centric focus can drive growth, especially in a booming tech market, but it also exposes the portfolio to sector-specific risks, such as regulatory changes or tech bubbles. A more balanced sector allocation could enhance resilience against sector downturns. Consider diversifying into underrepresented sectors like utilities or consumer defensive, which can offer stability and steady returns, especially during economic downturns.

Regions Info

  • North America
    98%
  • Europe Developed
    1%

Geographic allocation is heavily skewed towards North America, with 97.83% of the portfolio invested in this region. This concentration limits exposure to global markets, potentially missing out on growth opportunities in Europe, Asia, and emerging markets. While North American markets are robust, diversification across different regions can reduce geopolitical and economic risks. Consider increasing exposure to international markets, which can offer growth potential and hedge against regional economic downturns, enhancing overall portfolio resilience.

Redundant positions Info

  • VANGUARD MID-CAP INDEX FUND ADMIRAL SHARES
    VANGUARD GROWTH INDEX FUND ADMIRAL SHARES
    VANGUARD 500 INDEX FUND ADMIRAL SHARES
    VANGUARD TARGET RETIREMENT 2060 FUND INVESTOR SHARES
    High correlation

The portfolio contains highly correlated assets, particularly among the large-cap US equity funds. This high correlation means that these assets tend to move in tandem, limiting diversification benefits. In times of market stress, correlated assets can amplify losses. To improve diversification, consider including assets with lower correlation, such as international equities or bonds, which may behave differently in various market conditions. This approach can help spread risk and potentially improve risk-adjusted returns over time.

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's current structure suggests room for optimization using the Efficient Frontier, which aims to achieve the best possible risk-return ratio. This involves adjusting the allocation of current assets to maximize returns for a given level of risk. However, optimization should consider the investor's risk tolerance and goals. While efficiency focuses on risk-return, it doesn't account for diversification or other personal investment objectives. Regularly reassess and adjust allocations to ensure alignment with your evolving financial situation.

Dividends Info

  • VANGUARD 500 INDEX FUND ADMIRAL SHARES 1.20%
  • VANGUARD GROWTH INDEX FUND ADMIRAL SHARES 0.30%
  • VANGUARD MID-CAP INDEX FUND ADMIRAL SHARES 1.10%
  • VANGUARD SMALL-CAP VALUE INDEX FUND ADMIRAL SHARES 2.00%
  • Weighted yield (per year) 0.85%

The portfolio's dividend yield is relatively low at 0.85%, reflecting its growth-oriented nature. While growth stocks often reinvest earnings for expansion, dividends can provide a steady income stream, especially in volatile markets. If income is a priority, consider incorporating higher-yielding assets. Dividend-paying stocks or funds can offer regular income and potential tax advantages, depending on your situation. Balancing growth and income can enhance portfolio stability and cater to different financial goals.

Ongoing product costs Info

  • VANGUARD 500 INDEX FUND ADMIRAL SHARES 0.04%
  • VANGUARD GROWTH INDEX FUND ADMIRAL SHARES 0.05%
  • VANGUARD MID-CAP INDEX FUND ADMIRAL SHARES 0.05%
  • VANGUARD SMALL-CAP VALUE INDEX FUND ADMIRAL SHARES 0.07%
  • VANGUARD TARGET RETIREMENT 2060 FUND INVESTOR SHARES 0.08%
  • Weighted costs total (per year) 0.05%

The portfolio benefits from impressively low costs, with a total expense ratio (TER) of 0.05%. Low fees are crucial for long-term growth, as they minimize the drag on returns. Vanguard's funds are known for their cost-effectiveness, providing a solid foundation for cost-efficient investing. While the current costs are favorable, regularly review expense ratios to ensure they remain competitive. Consider whether any higher-fee investments could be replaced with similar lower-cost options, maximizing returns over time.

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