A growth-focused portfolio heavily reliant on U.S. equities with significant tech exposure
Report created on Jan 26, 2025Risk profile
5/7
Diversification profile
2/5
Positions
-
VO Vanguard S&P 500 ETF
VOO - US9229083632 70.00% -
VG Vanguard Information Technology Index Fund ETF Shares
VGT - US92204A7028 20.00% -
SC Schwab U.S. Dividend Equity ETF
SCHD - US8085247976 10.00%
The portfolio is heavily concentrated in U.S. equities, with 70% invested in the Vanguard S&P 500 ETF, 20% in the Vanguard Information Technology Index Fund ETF, and 10% in the Schwab U.S. Dividend Equity ETF. This composition indicates a strong focus on growth, primarily driven by large-cap U.S. stocks. While this concentration can lead to significant gains during market upswings, it also exposes the portfolio to higher volatility, especially given its low diversification score. For better risk management, consider diversifying into other asset classes such as bonds or international equities.
Growth
Historically, the portfolio has performed well with a Compound Annual Growth Rate (CAGR) of 15.79%. However, the maximum drawdown of -33.30% highlights its vulnerability during market downturns. This performance suggests that while the portfolio has the potential for high returns, it carries significant risk. Comparing this to a benchmark like the S&P 500, which has a similar return profile, shows that the portfolio's high concentration in U.S. equities can lead to substantial volatility. To mitigate this, consider strategies to reduce drawdown risk, possibly by diversifying into more stable assets.
Projection
The Monte Carlo simulation, which uses historical data to project future outcomes, shows a wide range of potential end portfolio values. With a 50th percentile value at 679.6% and an annualized return of 17.30%, the projections are optimistic. However, it's important to remember that these are based on past performance and do not guarantee future results. The high number of simulations with positive returns (996 out of 1,000) suggests a favorable outlook, but it's crucial to remain cautious and consider diversifying to prepare for less favorable market conditions.
Asset classes
- Stocks 100%
The portfolio is entirely composed of stocks, with no allocation to other asset classes like bonds or cash. This lack of diversification can lead to increased risk, as the portfolio is fully exposed to equity market fluctuations. While this composition aligns with a growth-focused strategy, adding other asset classes could help reduce volatility and provide more stable returns. Consider incorporating bonds or alternative investments to achieve a more balanced risk-return profile.
Sectors
- Technology 44%
- Financials 11%
- Health Care 9%
- Consumer Discretionary 9%
- Telecommunications 7%
- Industrials 7%
- Consumer Staples 5%
- Energy 4%
- Utilities 2%
- Real Estate 2%
- Basic Materials 1%
The portfolio is heavily weighted towards the technology sector, which comprises 44% of the total allocation. This concentration can lead to higher volatility, especially during periods of interest rate hikes or tech sector downturns. While tech stocks have driven significant growth in recent years, it's important to consider the potential risks associated with such a concentrated allocation. Diversifying into other sectors like healthcare or consumer defensive could help stabilize returns and reduce sector-specific risks.
Regions
- North America 99%
Geographic exposure is overwhelmingly concentrated in North America, accounting for 99% of the portfolio. This lack of international diversification increases vulnerability to U.S. market fluctuations and geopolitical risks. While the U.S. market has been strong, global diversification can offer exposure to different economic cycles and growth opportunities. Consider allocating a portion of the portfolio to international markets, which could enhance diversification and reduce reliance on the U.S. economy.
Market capitalization
- Mega-cap 43%
- Large-cap 36%
- Mid-cap 18%
- Small-cap 3%
- Micro-cap 1%
The portfolio's market capitalization breakdown includes 43% in mega-cap, 36% in big-cap, 18% in medium-cap, and minimal exposure to small and micro-cap stocks. This skew towards larger companies offers stability and reduced volatility compared to small-cap stocks. However, smaller companies can offer higher growth potential. Consider increasing exposure to small and mid-cap stocks to capture potential growth opportunities and improve diversification.
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 could benefit from optimization using the Efficient Frontier, which seeks the best possible risk-return ratio by adjusting asset allocations. Currently, the portfolio's heavy concentration in U.S. equities, particularly tech, may not be fully efficient. By exploring different combinations of existing assets, or incorporating new ones, the portfolio could achieve a more balanced risk-return profile. This optimization process focuses on maximizing returns for a given level of risk, not necessarily on diversification.
Dividends
- Schwab U.S. Dividend Equity ETF 3.50%
- Vanguard Information Technology Index Fund ETF Shares 0.60%
- Vanguard S&P 500 ETF 1.20%
- Weighted yield (per year) 1.31%
The portfolio's overall dividend yield is 1.31%, with the Schwab U.S. Dividend Equity ETF contributing the most at 3.50%. This yield provides a modest income stream, which can be appealing for investors seeking some income alongside growth. However, the focus remains primarily on capital appreciation. If income generation is a priority, consider increasing exposure to dividend-focused investments or exploring higher-yielding sectors to boost the portfolio's income potential.
Ongoing product costs
- Schwab U.S. Dividend Equity ETF 0.06%
- Vanguard Information Technology Index Fund ETF Shares 0.10%
- Vanguard S&P 500 ETF 0.03%
- Weighted costs total (per year) 0.05%
The portfolio's total expense ratio (TER) is impressively low at 0.05%, which supports better long-term performance by minimizing costs. This low-cost structure is a significant advantage, as it allows more of the investment returns to be retained. Maintaining a low TER is crucial for maximizing net returns, so continue to monitor and manage costs effectively. This cost efficiency aligns well with the growth-focused strategy, ensuring that expenses do not erode potential gains.
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