A growth-focused portfolio with high exposure to US equities and limited geographic diversification

Report created on Dec 7, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

This portfolio is heavily weighted towards equity ETFs, with a significant portion in large-cap US stocks. The SPDR® Portfolio S&P 500 Growth ETF and SPDR® Portfolio S&P 1500 Composite Stock Market ETF together comprise over 56% of the portfolio, reflecting a strong emphasis on US market growth. The allocation towards technology and healthcare sectors is notable, constituting a substantial part of the portfolio. Understanding the composition is crucial as it reveals the portfolio's bias towards certain markets and sectors, which can affect its risk and return profile. To mitigate sector-specific risks, consider diversifying into other asset classes or sectors.

Growth Info

Historically, the portfolio has performed well, with a compound annual growth rate (CAGR) of 16.11%. A hypothetical investment of $10,000 would have grown significantly, although it experienced a maximum drawdown of -31.8%. This illustrates the volatility inherent in growth-focused portfolios. While past performance provides some insight, it's not a guarantee of future results. Investors should be aware of the potential for significant fluctuations in value. To manage risk, consider setting stop-loss orders or diversifying into more stable asset classes.

Projection Info

The Monte Carlo simulation used to project future performance indicates a wide range of potential outcomes. With a 50th percentile return of 491.24%, the model suggests robust growth potential, albeit with uncertainty. Monte Carlo simulations use historical data to model different scenarios, offering a probabilistic view of future returns. However, they cannot predict market changes or account for unprecedented events. To better prepare for future volatility, consider stress-testing the portfolio under various economic conditions and adjusting allocations accordingly.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with a negligible allocation to cash. This lack of diversification across asset classes increases exposure to equity market risks. A portfolio concentrated in a single asset class may experience significant volatility, especially during market downturns. Diversifying into bonds, real estate, or alternative investments can provide stability and reduce overall risk. Consider reallocating a portion of the portfolio to fixed-income securities or other non-correlated assets to enhance diversification.

Sectors Info

  • Technology
    37%
  • Health Care
    13%
  • Consumer Discretionary
    11%
  • Telecommunications
    10%
  • Energy
    7%
  • Financials
    7%
  • Industrials
    6%
  • Consumer Staples
    5%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    1%

The portfolio is heavily invested in the technology sector, making up over 36% of the total allocation. While tech has been a strong performer, this concentration increases vulnerability to sector-specific downturns. Sector allocation is crucial in balancing growth potential with risk. Overexposure to a single sector can lead to heightened volatility. To achieve a more balanced approach, consider increasing exposure to underrepresented sectors such as utilities or consumer defensive, which may offer more stable returns.

Regions Info

  • North America
    92%
  • Europe Developed
    5%
  • Japan
    1%

With over 92% of the portfolio invested in North American assets, geographic diversification is limited. This concentration exposes the portfolio to regional risks, such as economic downturns or regulatory changes specific to the US. Geographic diversification can help mitigate these risks by spreading investments across various regions. Consider reallocating a portion of the portfolio to emerging markets or other developed economies to enhance resilience against local economic fluctuations.

Redundant positions Info

  • SPDR® Portfolio S&P 500 Growth ETF
    First Trust NASDAQ-100 Equal Weighted Index Fund
    Invesco QQQ Trust
    SPDR® Portfolio S&P 1500 Composite Stock Market ETF
    High correlation

The portfolio contains several highly correlated assets, particularly within US large-cap equity ETFs. High correlation means these assets tend to move in the same direction, which can amplify losses during market downturns. Understanding asset correlation is essential for effective risk management. By reducing correlation, investors can achieve more stable returns. Consider replacing some highly correlated ETFs with those that have low or negative correlation to improve diversification and reduce overall portfolio risk.

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 be optimized using the Efficient Frontier, which suggests the best possible risk-return ratio for a given set of assets. However, the current high correlation among assets limits diversification benefits. Efficient Frontier optimization helps investors achieve the maximum expected return for a given level of risk. To optimize the portfolio, focus on reducing overlap and increasing exposure to non-correlated assets. Consider reallocating investments to achieve a more efficient balance between risk and return.

Dividends Info

  • SPDR® MSCI EAFE StrategicFactors ETF 2.80%
  • First Trust NASDAQ-100 Equal Weighted Index Fund 0.70%
  • Invesco QQQ Trust 0.60%
  • SPDR® Portfolio S&P 1500 Composite Stock Market ETF 1.20%
  • SPDR® Portfolio S&P 500 Growth ETF 0.60%
  • Energy Select Sector SPDR® Fund 3.30%
  • Health Care Select Sector SPDR® Fund 1.60%
  • Weighted yield (per year) 1.11%

The portfolio's overall dividend yield is relatively modest at 1.11%, with the highest contribution from the Energy Select Sector SPDR® Fund at 3.3%. Dividends can provide a steady income stream, especially during periods of market volatility. While growth-focused portfolios often prioritize capital appreciation, incorporating higher-yielding assets can enhance total returns. Consider adding or increasing exposure to dividend-focused funds or stocks to boost income generation without sacrificing growth potential.

Ongoing product costs Info

  • SPDR® MSCI EAFE StrategicFactors ETF 0.30%
  • First Trust NASDAQ-100 Equal Weighted Index Fund 0.58%
  • Invesco QQQ Trust 0.20%
  • SPDR® Portfolio S&P 1500 Composite Stock Market ETF 0.03%
  • SPDR® Portfolio S&P 500 Growth ETF 0.04%
  • Energy Select Sector SPDR® Fund 0.09%
  • Health Care Select Sector SPDR® Fund 0.09%
  • Weighted costs total (per year) 0.14%

The portfolio's total expense ratio (TER) is 0.14%, which is relatively low and favorable for long-term investors. Lower costs mean more of your investment returns stay in your pocket, compounding over time. High fees can erode returns, especially in volatile markets. While the current costs are manageable, always be on the lookout for opportunities to reduce expenses further. Consider reviewing the expense ratios of each ETF and exploring lower-cost alternatives if available, to maximize net returns.

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