Growth-Oriented Portfolio with High Risk and Low Diversification Focused on US Markets

Report created on Nov 27, 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 composed of four ETFs, predominantly focused on U.S. equities. Schwab U.S. Dividend Equity ETF holds the largest share at 40%, followed by SPDR® Portfolio S&P 500 ETF at 25%. Schwab U.S. Large-Cap Growth ETF and Avantis® U.S. Small Cap Value ETF make up 20% and 15% respectively. The portfolio's focus on equities with minimal cash allocation suggests a growth-oriented strategy. The concentration in a few funds indicates low diversification, which might expose the portfolio to higher volatility and risk, especially given its focus on U.S. markets.

Growth Info

Historically, the portfolio has performed impressively with a CAGR of 17.8%. However, it has also experienced a significant max drawdown of -34.85%. This indicates that while the portfolio has delivered high returns, it has also been subject to considerable volatility. The fact that 90% of returns are concentrated in just 18 days highlights its reliance on market timing. This performance pattern suggests the need for a balanced approach to manage risk while maintaining growth potential.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was projected. The simulation assumes a hypothetical initial investment and provides a range of potential outcomes. The median outcome suggests a growth of 879.15%, with an annualized return of 21.06%. However, outcomes vary widely, with the 5th percentile at 125.48% and the 67th percentile at 1,340.56%. This indicates a broad range of potential returns, emphasizing the need for careful risk management and diversification to achieve stable growth.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, accounting for nearly 100% of the allocation, with a negligible cash position. This high equity exposure aligns with a growth-focused investment strategy but also increases the portfolio's sensitivity to market fluctuations. The lack of exposure to other asset classes like bonds or commodities suggests an opportunity to diversify and potentially reduce risk. Diversifying into other asset classes could help stabilize returns and cushion against equity market volatility.

Sectors Info

  • Technology
    23%
  • Financials
    17%
  • Consumer Discretionary
    12%
  • Health Care
    11%
  • Industrials
    10%
  • Energy
    8%
  • Consumer Staples
    8%
  • Telecommunications
    7%
  • Basic Materials
    2%
  • Utilities
    1%
  • Real Estate
    1%

The sector allocation is varied, with a strong emphasis on Technology (23.2%), Financial Services (17.1%), and Consumer Cyclicals (11.9%). While this provides some sector diversification, the high concentration in a few sectors could increase vulnerability to sector-specific downturns. A more balanced sector allocation could mitigate this risk. By spreading investments across a broader range of sectors, the portfolio could achieve a more stable performance and reduce the impact of sector-specific volatility.

Regions Info

  • North America
    99%

Geographically, the portfolio is overwhelmingly concentrated in North America, with 99.24% of assets allocated there. This heavy reliance on a single region poses a risk if the North American market experiences a downturn. The minimal exposure to other regions like Europe, Latin America, and Asia limits the portfolio's ability to benefit from global growth opportunities. Expanding geographical diversification could enhance the portfolio's resilience and capitalize on growth in emerging and developed markets outside North America.

Redundant positions Info

  • Schwab U.S. Large-Cap Growth ETF
    SPDR® Portfolio S&P 500 ETF
    High correlation

The portfolio shows high correlation between certain assets, notably the Schwab U.S. Large-Cap Growth ETF and SPDR® Portfolio S&P 500 ETF. This correlation suggests that these assets tend to move in the same direction, reducing the diversification benefits. High correlation can lead to increased portfolio volatility, as losses in one asset may not be offset by gains in another. To enhance diversification, consider replacing highly correlated assets with those that have a lower correlation, potentially reducing overall 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.

Before optimizing, focus on reducing asset overlap and correlation. High correlation diminishes diversification benefits. Moving along the efficient frontier can help achieve a riskier or more conservative portfolio. For a riskier portfolio, increase equity exposure; for a conservative one, consider more bonds. The current high equity allocation suggests potential for risk reduction by diversifying into other asset classes. Prioritize achieving a balanced portfolio that aligns with financial goals and risk tolerance.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Schwab U.S. Dividend Equity ETF 3.30%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • SPDR® Portfolio S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.92%

The portfolio's dividend yield stands at 1.92%, with the Schwab U.S. Dividend Equity ETF contributing the highest yield at 3.3%. This yield provides a modest income stream, supplementing the portfolio's growth focus. While dividends can offer a buffer during market downturns, the low overall yield suggests limited income potential. Increasing exposure to higher-yielding assets could enhance income generation, providing more stability and cushioning against market volatility, especially for investors seeking regular income.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • SPDR® Portfolio S&P 500 ETF 0.02%
  • Weighted costs total (per year) 0.07%

The portfolio's total expense ratio is 0.07%, indicating low costs relative to many actively managed funds. The SPDR® Portfolio S&P 500 ETF has the lowest cost at 0.02%, while the Avantis® U.S. Small Cap Value ETF is the highest at 0.25%. Keeping investment costs low is crucial for maximizing returns, as high fees can erode gains over time. The current low-cost structure is beneficial, but it's important to regularly review and ensure that the cost-to-benefit ratio remains favorable as the portfolio evolves.

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