A growth-focused portfolio with high correlation in large-cap and tech-heavy assets

Report created on Dec 25, 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 includes a mix of ETFs with a strong emphasis on U.S. equities, comprising 99.6% of the total allocation. This composition leans heavily towards large-cap and growth stocks, with a smaller portion in small-cap value. Compared to a typical benchmark, this portfolio is heavily skewed towards equities, offering higher potential returns but also increased risk. To enhance diversification, consider incorporating other asset classes like bonds or real estate, which could help mitigate volatility and provide stability, especially during market downturns.

Growth Info

Historically, the portfolio has performed impressively with a Compound Annual Growth Rate (CAGR) of 18.02%, significantly outperforming typical market benchmarks like the S&P 500. Despite this strong performance, a maximum drawdown of -34.41% indicates substantial volatility. This highlights the need for a risk management strategy. While past performance is promising, it’s important to remember that it doesn’t guarantee future results. Consider strategies to mitigate downside risk, such as diversifying into less volatile asset classes or sectors.

Projection Info

The Monte Carlo simulation, which uses historical data to project future outcomes, suggests a wide range of potential returns. With a median projection of 736.04% and a high probability of positive returns, the outlook is optimistic. However, it’s important to note that simulations rely on past data and cannot predict future market conditions. To better prepare for uncertainty, consider stress testing the portfolio under various economic scenarios, which can provide insights into potential vulnerabilities and help in strategizing for different market environments.

Asset classes Info

  • Stocks
    100%

The portfolio’s asset allocation is overwhelmingly concentrated in stocks, at 99.6%. While this can drive growth, it also exposes the portfolio to market volatility. Compared to a balanced benchmark, which might include bonds or alternative investments, this allocation is aggressive. To enhance diversification and potentially reduce risk, consider introducing other asset classes. Balanced portfolios typically include bonds or commodities, which can act as a hedge against stock market fluctuations, providing a buffer during downturns.

Sectors Info

  • Technology
    31%
  • Financials
    14%
  • Consumer Discretionary
    13%
  • Telecommunications
    9%
  • Industrials
    9%
  • Health Care
    8%
  • Consumer Staples
    5%
  • Energy
    4%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    2%

The portfolio is heavily weighted towards the technology sector, comprising over 31% of the allocation. This concentration can lead to higher volatility, especially during tech market corrections. The exposure to other sectors like financial services and consumer cyclicals is more balanced, aligning with common benchmarks. To mitigate sector-specific risks, consider adjusting the allocation to include sectors that are underrepresented, such as utilities or real estate, which can provide stability and reduce overall portfolio volatility.

Regions Info

  • North America
    85%
  • Europe Developed
    6%
  • Asia Emerging
    3%
  • Japan
    2%
  • Asia
    2%
  • Australasia
    1%
  • Latin America
    1%
  • Africa/Middle East
    1%

Geographically, the portfolio is predominantly focused on North America, with 85.35% exposure. This aligns with a strong U.S. market focus but limits international diversification. Compared to global benchmarks, there’s an underweight in emerging markets and other developed regions. To enhance geographic diversification and capture growth opportunities abroad, consider increasing exposure to regions like Asia or Europe. This can help balance the portfolio and potentially reduce risk associated with any regional economic downturns.

Redundant positions Info

  • Schwab U.S. Large-Cap Growth ETF
    Invesco QQQ Trust
    High correlation
  • Vanguard S&P 500 ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio exhibits high correlation between certain assets, such as the Schwab U.S. Large-Cap Growth ETF and the Invesco QQQ Trust. This limits diversification benefits, as these assets tend to move together in the market. While such correlation can amplify gains during upward trends, it also increases risk during downturns. To improve diversification, consider replacing some correlated assets with those that have historically shown lower correlation, which can help smooth out returns and reduce overall portfolio risk.

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 aims to achieve the best possible risk-return ratio. Currently, the portfolio includes overlapping assets that offer little diversification benefit. By adjusting the allocation to reduce correlations and introducing more diverse assets, the portfolio could potentially achieve a more favorable position on the Efficient Frontier. This optimization focuses on reallocating existing assets rather than adding new ones, aiming to enhance returns relative to risk.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.60%
  • Invesco QQQ Trust 0.40%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard S&P 500 ETF 0.90%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.90%
  • Vanguard Total International Stock Index Fund ETF Shares 1.60%
  • Weighted yield (per year) 0.94%

The portfolio’s dividend yield is relatively low at 0.94%, reflecting its growth-oriented focus. While dividends are not a primary concern for growth investors, they can provide a steady income stream and contribute to total returns. For investors seeking income, consider increasing allocation to higher-yielding assets or dividend-focused funds. However, for those focused on capital appreciation, maintaining a lower dividend yield is acceptable, provided the overall portfolio growth aligns with long-term investment goals.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Invesco QQQ Trust 0.20%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.10%

The portfolio’s total expense ratio (TER) is low at 0.1%, which is favorable for long-term performance. Lower costs mean more of your investment returns stay in your pocket, compounding over time. This aligns well with best practices for cost efficiency. To maintain this advantage, regularly review the expense ratios of current holdings and consider replacing any higher-cost funds with lower-cost alternatives, ensuring that the portfolio remains competitive in terms of fees.

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