Portfolio with High Risk and Low Diversification Focused on US Large-Cap Stocks

Report created on Dec 5, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

The portfolio is heavily concentrated in four ETFs, all tracking the S&P 500 or similar indices, with a focus on large-cap U.S. stocks. This results in low diversification, as all positions are within the same asset class. While this approach can offer robust growth potential, it also exposes the portfolio to market volatility. To mitigate risk, consider diversifying into different asset classes like bonds or international equities. This can help balance the portfolio and provide a cushion during market downturns, offering more stability over time.

Growth Info

Historically, the portfolio has delivered an impressive CAGR of 19.98%, indicating strong growth over the years. However, it also experienced a significant max drawdown of -33.03%, highlighting its vulnerability to market downturns. This volatility is typical for a growth-oriented portfolio with a high concentration in equities. While the returns have been attractive, it’s crucial to assess whether the level of risk aligns with long-term financial goals. Diversifying can help manage risk while potentially maintaining strong returns.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio shows a wide range of potential future outcomes. Assuming a hypothetical initial investment, the median projection indicates a 1,304.19% return, while the 5th percentile suggests a more conservative 295.61% return. This highlights the portfolio’s potential for high returns but also underscores the inherent risk. To improve future performance and manage risk, consider diversifying into less correlated assets, which can help stabilize returns across different market conditions.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with a minuscule cash position. This high equity allocation reflects a growth-oriented strategy but also increases exposure to market volatility. While equities offer the potential for significant returns, adding other asset classes like bonds can provide diversification benefits. This can help reduce overall portfolio risk and enhance stability, especially during market downturns, by offering a more balanced approach to asset allocation.

Sectors Info

  • Technology
    34%
  • Financials
    14%
  • Consumer Discretionary
    11%
  • Health Care
    11%
  • Telecommunications
    10%
  • Industrials
    7%
  • Consumer Staples
    5%
  • Energy
    3%
  • Utilities
    2%
  • Real Estate
    2%
  • Basic Materials
    2%

Sector allocation is heavily skewed towards technology, making up over 34% of the portfolio. While tech stocks have driven significant growth, this concentration increases vulnerability to sector-specific downturns. Other sectors like financial services and consumer cyclicals also have notable allocations. To achieve better balance, consider diversifying into underrepresented sectors. This can help mitigate risks associated with sector-specific volatility and enhance the portfolio’s resilience against economic fluctuations.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

The portfolio is overwhelmingly focused on North American assets, with over 99% exposure. This geographic concentration limits exposure to global markets, which can provide diversification benefits. While U.S. markets have historically performed well, international equities can offer growth opportunities and reduce volatility. By diversifying geographically, the portfolio can better navigate regional economic cycles and currency fluctuations, enhancing long-term resilience and potential returns.

Redundant positions Info

  • Vanguard S&P 500 ETF
    Schwab U.S. Large-Cap Growth ETF
    SPDR® Portfolio S&P 500 ETF
    High correlation

The portfolio’s assets are highly correlated, particularly among the S&P 500-focused ETFs. This high correlation means that the assets tend to move in the same direction, reducing the diversification benefits. To enhance diversification, consider incorporating assets that have lower correlations with the current holdings. This can help smooth out returns and reduce portfolio volatility, providing a more balanced investment approach that can withstand different market conditions.

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.

Before optimizing, focus on reducing overlapping, highly correlated assets that don’t contribute to diversification. To achieve a riskier or more conservative portfolio, move along the efficient frontier by adjusting the asset allocation. Increasing bond allocation can make the portfolio more conservative, while adding more equities can increase risk. The key is balancing risk and return to align with financial goals. This approach can enhance diversification and potentially improve the risk-return profile, offering a more tailored investment strategy.

Dividends Info

  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • SPDR® Portfolio S&P 500 ETF 1.20%
  • Invesco S&P 500® Momentum ETF 0.40%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 0.88%

The portfolio has a modest dividend yield of 0.88%, primarily driven by the Vanguard S&P 500 ETF and SPDR® Portfolio S&P 500 ETF. While dividends can provide a steady income stream, the focus on growth-oriented ETFs means the yield is not a primary contributor to overall returns. To increase income potential, consider including higher-yielding assets. This can complement the growth strategy by providing regular income, enhancing total return and offering some protection during market downturns.

Ongoing product costs Info

  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • SPDR® Portfolio S&P 500 ETF 0.02%
  • Invesco S&P 500® Momentum ETF 0.13%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.05%

The portfolio benefits from low costs, with a total expense ratio of 0.05%. This is a positive aspect, as lower costs can significantly enhance net returns over time. Keeping expenses low is crucial for maximizing investment gains, especially in a growth-focused portfolio. While the current cost structure is efficient, always be on the lookout for opportunities to reduce expenses further. This can involve regularly reviewing fund fees and exploring cost-effective alternatives to maintain a lean investment strategy.

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