A growth-oriented portfolio with high concentration in U.S. equities and limited diversification

Report created on Jan 6, 2025

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

This portfolio consists of three ETFs, with 80% allocated to large-cap U.S. equities and 20% to mid-cap momentum stocks. Such a composition indicates a significant focus on growth, primarily within the U.S. market. While this structure can capitalize on the robust U.S. economy, it lacks diversification across asset classes and regions, which may increase vulnerability to domestic market downturns. To enhance stability, consider introducing other asset classes like bonds or alternative investments to balance risk and potential returns.

Growth Info

Historically, the portfolio has delivered a strong CAGR of 16.1%, reflecting significant growth potential. However, the maximum drawdown of -34.27% highlights the volatility that accompanies a high concentration in growth-oriented equities. This performance, while impressive, underscores the importance of understanding the risks inherent in such a concentrated strategy. To mitigate potential downturns, consider diversifying or employing risk management strategies to cushion against significant market corrections.

Projection Info

Forward projections using Monte Carlo simulations show a wide range of potential outcomes, with a median return of 655.11%. This method uses historical data to simulate future performance, offering a glimpse into potential portfolio trajectories. However, it's crucial to remember that these projections are not guarantees. While the optimistic outlook is promising, consider maintaining flexibility in your strategy to adapt to changing market conditions and reduce reliance on historical trends alone.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly invested in stocks, with nearly 100% allocation, leaving minimal exposure to other asset classes. This lack of diversification can heighten risk, especially in volatile markets. While equities offer growth potential, incorporating other asset classes like fixed income or real assets could provide a buffer during market fluctuations. Balancing asset classes can create a more resilient portfolio capable of weathering diverse economic conditions.

Sectors Info

  • Technology
    33%
  • Consumer Discretionary
    13%
  • Financials
    13%
  • Industrials
    11%
  • Health Care
    10%
  • Telecommunications
    9%
  • Consumer Staples
    4%
  • Energy
    2%
  • Basic Materials
    2%
  • Real Estate
    2%
  • Utilities
    1%

The sector allocation is heavily skewed towards technology, making up over 32% of the portfolio. While tech stocks have driven recent market gains, they can also experience heightened volatility, especially during interest rate hikes. Other sectors like consumer cyclicals and financial services are moderately represented. To mitigate sector-specific risks, consider diversifying into underrepresented sectors that may offer stable returns and reduce overall portfolio volatility.

Regions Info

  • North America
    100%

The portfolio's geographic allocation is heavily concentrated in North America, with over 99% exposure. This regional focus limits the portfolio's ability to benefit from growth opportunities in other global markets. Diversifying geographically can reduce risk by spreading exposure across different economic environments. Consider adding international equities to tap into emerging markets or developed economies with different growth drivers and economic cycles.

Redundant positions Info

  • Vanguard Total Stock Market Index Fund ETF Shares
    Schwab U.S. Large-Cap Growth ETF
    High correlation

The high correlation between the Vanguard Total Stock Market Index Fund and the Schwab U.S. Large-Cap Growth ETF suggests limited diversification benefits. Correlated assets tend to move together, which can amplify losses during market downturns. To enhance diversification, consider replacing one of these ETFs with an asset that has a lower correlation to the existing holdings. This strategy can help smooth portfolio volatility and improve risk-adjusted returns.

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 can potentially be optimized using the Efficient Frontier, focusing on achieving the best possible risk-return ratio. This involves adjusting the current asset allocation to improve efficiency without necessarily adding new investments. By reallocating existing assets, you can aim for a balance that maximizes returns for a given level of risk. This approach is particularly beneficial in a growth-focused portfolio where risk management is key to sustaining long-term performance.

Dividends Info

  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Invesco S&P MidCap Momentum ETF 0.20%
  • Weighted yield (per year) 0.72%

The portfolio's dividend yield is relatively low at 0.72%, reflecting its growth-oriented nature. While dividends can provide a steady income stream, the focus here is on capital appreciation. Investors seeking regular income might consider adding higher-yielding assets to balance growth with income generation. However, if capital growth remains the primary objective, maintaining the current yield focus may align with long-term goals.

Ongoing product costs Info

  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Invesco S&P MidCap Momentum ETF 0.34%
  • Weighted costs total (per year) 0.10%

The portfolio enjoys impressively low costs, with a total expense ratio (TER) of 0.1%. Low costs are advantageous as they enhance long-term returns by minimizing the drag on performance. This efficient cost structure aligns with best practices for cost-conscious investing. To maintain this advantage, regularly review the cost structure to ensure continued alignment with investment goals and explore opportunities to further reduce expenses without sacrificing quality.

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