Growth-Oriented Portfolio with Low Diversification and High Correlation Among Large-Cap U.S. Stocks

Report created on Jul 6, 2024

Risk profile Info

5/7
Growth
← Less risk More risk →

Diversification profile Info

2/5
Low Diversity
← Less diversification More diversification →

Positions

This portfolio is composed entirely of ETFs, with a strong focus on U.S. equities. The largest position is the Vanguard Total Stock Market Index Fund ETF, making up 35% of the portfolio. The Schwab U.S. Large-Cap Growth ETF follows closely at 30%, while the Schwab U.S. Dividend Equity ETF and Avantis U.S. Small Cap Value ETF account for 20% and 15% respectively. This composition indicates a growth-oriented strategy but lacks diversification across different asset classes, as it heavily leans on U.S. stock market exposure.

Growth Info

Historically, the portfolio has delivered a robust compound annual growth rate (CAGR) of 18.58%, which is impressive. However, it has also experienced a significant maximum drawdown of -35.27%, indicating vulnerability to market downturns. This performance suggests that while the portfolio has been able to capture substantial growth, it also carries a higher risk, which is typical for a growth-focused investment. Investors should be prepared for potential volatility and consider their risk tolerance when evaluating such performance.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance shows a wide range of potential outcomes. The 5th percentile projects an 81.47% return, while the 50th and 67th percentiles suggest much higher returns of 840.06% and 1,336.83%, respectively. The annualized return across all simulations is 20.78%. This simulation highlights the uncertainty and variability in future returns, emphasizing the need for investors to be comfortable with potential fluctuations and to have a long-term perspective.

Asset classes Info

  • Stocks
    100%

The portfolio's asset allocation is heavily skewed towards stocks, with a staggering 99.87% in equities and a negligible 0.13% in cash. This allocation reflects a high-risk, high-reward strategy typical of growth-oriented portfolios. While this can lead to significant gains during bullish markets, it also exposes the portfolio to higher volatility. For investors seeking a more balanced approach, it might be wise to consider incorporating other asset classes such as bonds or commodities to reduce risk and enhance diversification.

Sectors Info

  • Technology
    28%
  • Financials
    15%
  • Consumer Discretionary
    12%
  • Health Care
    11%
  • Industrials
    9%
  • Telecommunications
    8%
  • Energy
    6%
  • Consumer Staples
    6%
  • Basic Materials
    3%
  • Real Estate
    1%
  • Utilities
    1%

Sector allocation in this portfolio is concentrated, with a notable 28.34% in Technology and significant portions in Financial Services, Consumer Cyclicals, and Healthcare. This concentration means the portfolio's performance is heavily influenced by the performance of these sectors. While these sectors have historically driven growth, they can also be volatile. Investors should be aware of the potential risks associated with sector concentration and consider diversifying across a broader range of industries to mitigate sector-specific risks.

Regions Info

  • North America
    99%

Geographically, the portfolio is overwhelmingly focused on North America, with 99.33% of its assets allocated there. This regional concentration may limit the portfolio's exposure to international growth opportunities and increase vulnerability to U.S.-specific economic conditions. While this focus can benefit from the stability and growth of the U.S. market, investors might want to explore adding international equities to enhance diversification and capture potential growth in other regions.

Redundant positions Info

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

There is a high correlation between the Vanguard Total Stock Market Index Fund ETF and the Schwab U.S. Large-Cap Growth ETF. This correlation indicates that these assets tend to move in the same direction, which can amplify risk during market downturns. While correlated assets can provide stability in certain market conditions, they also reduce the benefits of diversification. Investors should consider reducing correlation by including assets with different risk-return profiles to achieve a more resilient portfolio.

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.

Portfolio optimization isn't recommended at this stage due to high correlation among assets, particularly between large-cap U.S. stocks. Instead, focus on enhancing diversification by adding uncorrelated assets, which can help reduce risk. To achieve a riskier portfolio, consider increasing equity exposure, whereas a more conservative approach might involve incorporating fixed-income securities. Moving along the efficient frontier can help balance risk and return, but it's essential to align adjustments with personal financial goals and risk appetite.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Schwab U.S. Dividend Equity ETF 3.40%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 1.48%

The portfolio has an overall dividend yield of 1.48%, with the Schwab U.S. Dividend Equity ETF contributing the highest yield at 3.4%. Dividends can provide a steady income stream and add stability to a portfolio, especially during volatile market periods. However, the overall yield is relatively modest, reflecting the growth-oriented nature of the portfolio. Investors seeking higher income might consider increasing exposure to dividend-focused investments or exploring other income-generating asset classes.

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%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.07%

The total expense ratio (TER) for this portfolio is a low 0.07%, indicating cost-efficiency. The Vanguard Total Stock Market Index Fund ETF has the lowest cost at 0.03%, while the Avantis U.S. Small Cap Value ETF is the highest at 0.25%. Low costs are advantageous as they can significantly enhance net returns over time. Investors should continue to prioritize low-cost investment options and be mindful of fees, as they can erode gains, especially in long-term portfolios.

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