A growth-focused portfolio with strong US exposure and moderate diversification potential

Report created on Dec 29, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

The portfolio is heavily weighted towards equities, with a 65% allocation to the iShares Core S&P 500 ETF. This high concentration in a single ETF suggests a strong focus on large-cap US stocks. While such a composition aligns with growth-focused strategies, it may limit diversification. Comparing to a typical balanced portfolio, which often includes bonds for stability, this portfolio is more aggressive. To enhance diversification, consider integrating other asset classes like bonds or real estate. This could help stabilize returns during market volatility, aligning better with a diversified growth strategy.

Growth Info

The portfolio has shown impressive historical performance with a Compound Annual Growth Rate (CAGR) of 15.06%. This suggests strong growth potential, especially given the high US equity exposure. However, it experienced a maximum drawdown of -35.38%, indicating potential vulnerability during market downturns. Comparing this to a benchmark like the S&P 500, the performance is competitive, yet the drawdown is a reminder of the inherent risks. While historical data provides insights, it's crucial to remember that past performance doesn't guarantee future results. Consider strategies to mitigate drawdowns, such as diversifying further or adding defensive assets.

Projection Info

The Monte Carlo simulation, which uses historical data to predict future outcomes, suggests a wide range of potential returns. With a median projection of 356.87% and a positive return in 963 out of 1,000 simulations, the portfolio has a strong growth outlook. However, it's important to note that these projections are based on historical trends and assumptions that may not hold true in the future. While the 14.3% annualized return is promising, consider maintaining flexibility to adjust your strategy as market conditions evolve.

Asset classes Info

  • Stocks
    99%

The portfolio's asset allocation is heavily skewed towards stocks, comprising 99.5% of the total. This indicates a high-risk, high-reward strategy typical for growth-oriented portfolios. While this can lead to substantial gains during bull markets, it also increases exposure to market volatility. Compared to a diversified portfolio, which might include bonds or other assets for risk mitigation, this allocation is aggressive. To balance risk and return, consider incorporating other asset classes, such as bonds or commodities, which can provide stability and reduce overall portfolio risk.

Sectors Info

  • Technology
    26%
  • Financials
    15%
  • Consumer Discretionary
    12%
  • Industrials
    11%
  • Health Care
    9%
  • Telecommunications
    7%
  • Consumer Staples
    6%
  • Energy
    5%
  • Basic Materials
    4%
  • Utilities
    3%
  • Real Estate
    3%

The portfolio's sector allocation is dominated by Technology at 25.82%, followed by Financial Services and Consumer Cyclicals. This concentration in tech suggests potential for high growth, but also higher volatility, especially during interest rate changes. Compared to common benchmarks, this sector allocation is aggressive and may benefit from more balance. By diversifying into underrepresented sectors like Utilities or Real Estate, you can mitigate risk and potentially enhance returns. A more balanced sector approach can better withstand economic shifts and provide stable long-term growth.

Regions Info

  • North America
    81%
  • Europe Developed
    8%
  • Japan
    4%
  • Asia Emerging
    3%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

With 81.19% of the portfolio concentrated in North America, there's a strong domestic bias. While this aligns with the US market's robust performance, it limits exposure to international growth opportunities. Compared to global benchmarks, which often have more balanced geographic allocations, this portfolio could benefit from increased diversification. Consider expanding exposure to emerging markets or other developed regions to capture potential growth and reduce reliance on the US economy. This broader geographic reach can enhance diversification and resilience against regional economic downturns.

Redundant positions Info

  • iShares Core S&P 500 ETF
    Vanguard Mid-Cap Index Fund ETF Shares
    High correlation

The portfolio exhibits high correlation between the iShares Core S&P 500 ETF and the Vanguard Mid-Cap Index Fund ETF Shares. This correlation suggests that these assets tend to move together, which might limit diversification benefits. During market downturns, highly correlated assets can amplify losses rather than mitigate them. To enhance diversification, consider replacing one of these ETFs with assets that have a lower correlation. This approach can help reduce portfolio volatility and improve risk-adjusted returns, aligning better with a diversified growth strategy.

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 potentially be optimized using the Efficient Frontier, which seeks the best risk-return ratio for a given set of assets. However, the presence of highly correlated assets, like the iShares Core S&P 500 ETF and the Vanguard Mid-Cap Index Fund ETF Shares, may limit this optimization. Before attempting to optimize, focus on reducing overlap by replacing correlated assets with those offering better diversification. This step can enhance the portfolio's efficiency, allowing you to achieve a more favorable balance between risk and return while maintaining your growth objectives.

Dividends Info

  • Avantis® International Small Cap Value ETF 4.30%
  • Avantis® U.S. Small Cap Value ETF 1.60%
  • iShares Core S&P 500 ETF 0.90%
  • Vanguard Mid-Cap Index Fund ETF Shares 1.80%
  • Vanguard Total International Stock Index Fund ETF Shares 3.30%
  • Weighted yield (per year) 1.55%

The portfolio's overall dividend yield is 1.55%, with notable contributions from the Avantis International Small Cap Value ETF and Vanguard Total International Stock Index Fund ETF Shares. This yield provides a modest income stream, which can be beneficial for reinvestment or income-focused strategies. However, for a growth-oriented portfolio, dividends play a secondary role compared to capital appreciation. If income generation is a priority, consider increasing exposure to higher-yielding assets. Otherwise, maintaining the current focus on growth-oriented equities is appropriate for long-term capital appreciation.

Ongoing product costs Info

  • Avantis® International Small Cap Value ETF 0.36%
  • Avantis® U.S. Small Cap Value ETF 0.25%
  • iShares Core S&P 500 ETF 0.03%
  • Vanguard Mid-Cap Index Fund ETF Shares 0.04%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.07%

The portfolio's total expense ratio (TER) is impressively low at 0.07%, with the iShares Core S&P 500 ETF having the lowest fee at 0.03%. This cost efficiency supports better long-term performance by minimizing the drag on returns. Lower costs are particularly advantageous in growth portfolios, where compounding returns over time can significantly enhance wealth accumulation. However, always remain vigilant for any changes in fund fees and explore opportunities to reduce costs further, such as switching to even lower-cost funds if available. This focus on cost efficiency aligns well with prudent investment management.

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