A concentrated portfolio with strong U.S. focus and limited sector diversification

Report created on Feb 3, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

This portfolio comprises two ETFs, with the Vanguard Total Stock Market Index Fund ETF accounting for 70% and the Schwab U.S. Dividend Equity ETF making up 30%. This composition leans heavily on U.S. equities, offering broad market exposure through a single asset class. Such a structure simplifies management but limits diversification. While this allocation captures the broad U.S. market, it may not fully mitigate risks associated with market downturns. To enhance diversification, consider incorporating additional asset classes like bonds or international equities, which can provide stability during volatile periods.

Growth Info

Historically, the portfolio has delivered a strong Compound Annual Growth Rate (CAGR) of 13.21%, outperforming many traditional benchmarks. However, it also experienced a significant maximum drawdown of -34.34%, highlighting potential volatility. This performance suggests that while the portfolio can generate impressive returns, it may also expose investors to substantial risks during market downturns. To balance these dynamics, consider strategies that can buffer against such drawdowns, like diversification into less correlated assets or sectors.

Projection Info

Monte Carlo simulations, which use historical data to project future outcomes, show a wide range of potential results for this portfolio. With 1,000 simulations, the annualized return averaged 13.69%, and the portfolio had a 67th percentile projection of 582.8% growth. However, it's important to note that past performance does not guarantee future results. These projections suggest potential for significant growth, but also underscore the importance of preparing for varied market conditions. Regularly revisiting the portfolio's allocation can help maintain alignment with investment goals and risk tolerance.

Asset classes Info

  • Stocks
    100%

The portfolio is entirely invested in stocks, lacking exposure to other asset classes like bonds or cash. Such an allocation can lead to higher volatility and potential for greater drawdowns, especially during market corrections. While equities often drive growth, diversifying into bonds or other asset classes can provide stability and reduce overall risk. Consider adding fixed income or alternative investments to enhance diversification and potentially smooth returns over time.

Sectors Info

  • Technology
    26%
  • Financials
    15%
  • Health Care
    12%
  • Consumer Discretionary
    11%
  • Industrials
    9%
  • Consumer Staples
    8%
  • Telecommunications
    7%
  • Energy
    6%
  • Real Estate
    2%
  • Basic Materials
    2%
  • Utilities
    2%

The sector allocation shows a substantial concentration in technology (26%), followed by financial services (15%) and healthcare (12%). While these sectors have historically driven growth, they can also introduce volatility, particularly if economic conditions shift. The portfolio's sector composition is somewhat aligned with broader market benchmarks, but the heavy tech weighting could lead to increased sensitivity to market swings. Balancing this with exposure to traditionally stable sectors like utilities or consumer staples might reduce risk.

Regions Info

  • North America
    99%

The portfolio is overwhelmingly concentrated in North America, with 99% exposure, leaving it vulnerable to regional economic downturns. This geographic concentration limits the benefits of international diversification, which can provide exposure to different economic cycles and growth opportunities. Consider incorporating international equities or funds to diversify geographic risk and capture potential growth in other regions, such as Europe or Asia.

Market capitalization Info

  • Large-cap
    41%
  • Mega-cap
    29%
  • Mid-cap
    22%
  • Small-cap
    6%
  • Micro-cap
    2%

The portfolio is diversified across market capitalizations, with significant exposure to big (41%) and mega-cap (29%) stocks. While large-cap stocks offer stability, the inclusion of mid (22%) and small-cap (6%) stocks can enhance growth potential. However, the portfolio's minimal allocation to micro-caps (2%) suggests limited exposure to potentially high-growth opportunities. To balance risk and reward, consider adjusting allocations to include a broader range of market caps, particularly if seeking growth.

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 be optimized along the Efficient Frontier, which identifies the best risk-return ratio for a given set of assets. By adjusting the allocation between the current ETFs, it may be possible to improve the portfolio's efficiency. However, it's important to note that this optimization focuses solely on existing assets and does not introduce new ones. Investors should consider their risk tolerance and investment goals when making such adjustments, ensuring that changes align with their broader strategy.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.60%
  • Vanguard Total Stock Market Index Fund ETF Shares 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 a higher yield of 3.60%. Dividends can provide a steady income stream and cushion against market volatility. However, the overall yield is modest, reflecting the portfolio's growth orientation. Investors seeking higher income might explore adding higher-yielding assets or increasing allocation to dividend-focused funds, balancing the need for income with growth potential.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.04%

The portfolio's costs are impressively low, with a total expense ratio (TER) of just 0.04%. Such low costs are beneficial for long-term performance, as they allow more of the portfolio's returns to compound over time. This efficient cost structure aligns well with best practices in portfolio management, ensuring that expenses do not erode returns. Maintaining this low-cost approach is advantageous, but it is also worth periodically reviewing fees to ensure continued efficiency.

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