Highly concentrated growth-focused portfolio with significant exposure to large-cap U.S. equities
Report created on Feb 1, 2025Risk profile
5/7
Diversification profile
2/5
Positions
-
VO Vanguard S&P 500 ETF
VOO - US9229083632 80.00% -
SC Schwab U.S. Large-Cap Growth ETF
SCHG - US8085243009 20.00%
The portfolio is heavily concentrated in two ETFs: the Vanguard S&P 500 ETF and the Schwab U.S. Large-Cap Growth ETF, with an 80% and 20% allocation, respectively. This composition is skewed towards large-cap U.S. equities, which may limit diversification. Compared to a typical balanced portfolio, this setup is less diversified, as it lacks exposure to other asset classes like bonds or international stocks. To enhance diversification, consider introducing additional asset classes or funds that offer exposure to different markets or sectors, potentially reducing risk while maintaining growth potential.
Growth
Historically, the portfolio has demonstrated strong performance with a CAGR of 14.95%, indicating robust growth over time. However, it also experienced a significant maximum drawdown of -33.65%, highlighting vulnerability during market downturns. Compared to benchmarks, this performance is impressive, but the high drawdown suggests a potential need for risk management strategies. Consider strategies such as rebalancing or diversifying with less correlated assets to mitigate future drawdowns while maintaining growth.
Projection
Using Monte Carlo simulations, which predict future outcomes based on historical data, the portfolio shows a promising median return of 695% over the simulated period. However, the reliance on historical data means these projections are not guaranteed. With 996 out of 1,000 simulations indicating positive returns, the outlook is optimistic, yet it's crucial to remember that market conditions can change. Regularly reviewing and adjusting the portfolio in response to market trends can help align with long-term goals.
Asset classes
- Stocks 100%
The portfolio is entirely allocated to stocks, lacking diversification across different asset classes. This single-asset class concentration increases exposure to stock market volatility. In comparison, a more diversified portfolio might include bonds, commodities, or real estate, which could provide stability during market fluctuations. To reduce risk, consider incorporating other asset classes, which can offer smoother returns and potential protection against stock market downturns.
Sectors
- Technology 36%
- Financials 12%
- Consumer Discretionary 11%
- Health Care 10%
- Telecommunications 10%
- Industrials 7%
- Consumer Staples 5%
- Energy 3%
- Utilities 2%
- Real Estate 2%
- Basic Materials 2%
Sector allocation reveals a heavy emphasis on technology at 36%, followed by financial services at 12%. This concentration in tech suggests higher volatility, especially during interest rate hikes or tech sector downturns. While the tech sector has driven growth, diversifying into other sectors could reduce risk. Balancing sector exposure, perhaps by increasing allocations to more stable sectors like healthcare or consumer staples, could enhance resilience against sector-specific risks.
Regions
- North America 100%
Geographically, the portfolio is entirely focused on North America, specifically the U.S., which limits exposure to international markets. This concentration can be risky if the U.S. market underperforms. Diversifying geographically by including funds with exposure to Europe, Asia, or emerging markets could reduce regional risk and capture growth opportunities abroad. Such diversification can help mitigate the impact of regional economic downturns and currency fluctuations.
Market capitalization
- Mega-cap 51%
- Large-cap 32%
- Mid-cap 16%
- Small-cap 1%
The portfolio's market capitalization is heavily weighted towards mega and large-cap stocks, comprising 83% of the total. While large-cap stocks are typically more stable, they may offer less growth potential than smaller companies. Including mid or small-cap stocks could enhance growth opportunities and diversification. A balanced market cap allocation can provide a mix of stability and growth, potentially improving overall portfolio performance.
Redundant positions
-
High correlationVanguard S&P 500 ETFSchwab U.S. Large-Cap Growth ETF
The assets in the portfolio are highly correlated, meaning they tend to move in the same direction. This correlation can limit diversification benefits, especially during market downturns when all assets may decline simultaneously. To improve diversification, consider adding assets with lower correlation, such as international equities or alternative investments. This strategy can help reduce 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 current portfolio could be optimized using the Efficient Frontier, which identifies the best possible risk-return ratio based on existing assets. However, the high correlation between the two ETFs may limit the benefits of such optimization. To enhance efficiency, consider reducing overlap and introducing less correlated assets to achieve a more balanced risk-return profile. This approach can help maximize returns while managing risk effectively.
Dividends
- Schwab U.S. Large-Cap Growth ETF 0.40%
- Vanguard S&P 500 ETF 1.20%
- Weighted yield (per year) 1.04%
The portfolio's dividend yield stands at 1.04%, with the Vanguard S&P 500 ETF contributing the majority. While dividends can provide a steady income stream, this yield is relatively modest for a growth-focused portfolio. Investors seeking higher income might explore higher-yielding assets. However, the primary goal here is growth, so maintaining a balance between yield and capital appreciation is crucial for aligning with long-term objectives.
Ongoing product costs
- Schwab U.S. Large-Cap Growth ETF 0.04%
- Vanguard S&P 500 ETF 0.03%
- Weighted costs total (per year) 0.03%
The portfolio's costs are impressively low, with a total TER of 0.03%, supporting better long-term performance by minimizing fees. Low costs are advantageous as they allow more of the investment returns to be retained. Maintaining a focus on cost-efficiency is beneficial, but ensure that low costs do not compromise diversification or quality. Regularly reviewing and comparing fund expenses can help sustain cost-effectiveness without sacrificing performance.
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