A growth-focused portfolio with high concentration in large-cap US equities and limited diversification

Report created on Jul 28, 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 primarily composed of three ETFs, with the Vanguard S&P 500 ETF making up nearly half of the allocation, followed by Invesco QQQ Trust and Vanguard Total Stock Market Index Fund ETF Shares. This composition leans heavily towards US equities, reflecting a concentrated approach with low diversification. A benchmark comparison reveals a similar focus on large-cap stocks, but with less diversification across asset classes. While this structure supports growth, it may expose the portfolio to higher volatility. Consider diversifying into other asset classes to balance risk and return.

Growth Info

Historically, the portfolio has performed well, with a CAGR of 15.40%, outpacing many benchmarks. However, it experienced a significant maximum drawdown of -32.03%, indicating potential vulnerability during market downturns. A hypothetical initial investment would have grown substantially, but the concentrated nature means returns are reliant on a few key sectors. Comparing this to a diversified benchmark, the performance is strong but at the cost of increased volatility. It's crucial to weigh the impressive returns against the potential for significant short-term losses.

Projection Info

Forward projections using Monte Carlo simulations indicate a wide range of outcomes, with a 5th percentile return of 115.7% and a 50th percentile of 585.2%. The simulations show a high probability of positive returns, but the reliance on historical data means these projections are not guaranteed. The simulations help visualize potential future performance but should be interpreted with caution, as past data may not fully predict future market conditions. Consider using these projections as a guide rather than a certainty, and prepare for varied outcomes.

Asset classes Info

  • Stocks
    100%

The portfolio is entirely invested in stocks, with no allocation to other asset classes like bonds or cash. This singular focus on equities increases potential returns but also heightens risk, especially during market downturns. Compared to diversified benchmarks, this allocation lacks the stability that bonds or other non-equity assets can provide. To enhance diversification, consider incorporating other asset classes to mitigate risks and smooth returns over time. Balancing growth with stability is key to long-term success.

Sectors Info

  • Technology
    38%
  • Consumer Discretionary
    12%
  • Telecommunications
    11%
  • Financials
    10%
  • Health Care
    9%
  • Industrials
    7%
  • Consumer Staples
    6%
  • Energy
    3%
  • Utilities
    2%
  • Real Estate
    2%
  • Basic Materials
    2%

The portfolio has a strong concentration in the technology sector, comprising 38% of the allocation, followed by consumer cyclicals and communication services. This tech-heavy focus aligns with recent growth trends but may increase volatility, particularly in rising interest rate environments. Compared to broader benchmarks, the sector allocation is less diverse, potentially exposing the portfolio to sector-specific risks. Consider diversifying into underrepresented sectors to reduce reliance on tech and enhance resilience against sector downturns.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly concentrated in North America, with 99% of assets allocated there. This focus limits exposure to global markets, which can provide important diversification benefits. Compared to global benchmarks, the lack of international diversification may increase vulnerability to US-specific economic risks. To mitigate this, consider expanding geographic exposure, particularly in emerging markets, to capture growth opportunities and reduce potential regional risks.

Market capitalization Info

  • Mega-cap
    47%
  • Large-cap
    34%
  • Mid-cap
    16%
  • Small-cap
    2%
  • Micro-cap
    1%

The portfolio predominantly invests in mega and large-cap companies, making up 81% of the allocation. This focus on larger companies provides stability and liquidity but may limit exposure to the growth potential of smaller firms. Compared to benchmarks, the market capitalization allocation is skewed towards large caps, potentially reducing diversification. Consider increasing exposure to small and mid-cap stocks to capture growth opportunities and enhance overall portfolio balance.

Redundant positions Info

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

The assets in this portfolio show high correlation, particularly between the Vanguard S&P 500 ETF and the Vanguard Total Stock Market Index Fund ETF Shares. This correlation suggests that the portfolio may not benefit from diversification during market downturns, as assets tend to move together. While correlated assets can provide consistent returns, they also increase vulnerability to market shocks. Explore diversifying with less correlated assets to improve risk management and enhance resilience.

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 allocation can be optimized using the Efficient Frontier, which seeks the best possible risk-return ratio. However, the presence of highly correlated assets may limit diversification benefits. By reallocating funds among existing assets, it's possible to enhance efficiency without sacrificing growth potential. Consider reducing overlap and exploring alternative assets to achieve a more balanced risk-return profile. This approach can help maximize returns while managing risk effectively.

Dividends Info

  • Invesco QQQ Trust 0.50%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Weighted yield (per year) 0.99%

The portfolio's dividend yield is relatively modest at 0.99%, reflecting its growth-oriented nature. Dividends provide a steady income stream, which can be particularly beneficial during market volatility. However, the focus on growth means dividends are not a primary source of returns. Compared to income-focused portfolios, the yield is lower, but it aligns with the goal of capital appreciation. Consider balancing growth with higher-yielding assets if income generation becomes a priority in the future.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.08%

Portfolio costs are impressively low, with a total expense ratio (TER) of 0.08%. This low-cost structure supports better long-term returns by minimizing the drag on performance. Compared to actively managed funds, the expenses are significantly lower, allowing more of the returns to be retained. Maintaining such a cost-efficient structure is a positive aspect of the portfolio. Continue monitoring costs to ensure they remain competitive, as reducing expenses can significantly impact net returns over time.

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