A growth-focused portfolio with high tech exposure and limited geographic diversification
Report created on Mar 25, 2025Risk profile
5/7
Diversification profile
2/5
Positions
-
VO Vanguard S&P 500 ETF
VOO - US9229083632 55.00% -
VG Vanguard Information Technology Index Fund ETF Shares
VGT - US92204A7028 35.00% -
AV Avantis® U.S. Small Cap Value ETF
AVUV - US0250728773 10.00%
This portfolio is heavily weighted towards U.S. equities, with 100% allocation in stocks. The Vanguard S&P 500 ETF dominates at 55%, followed by the Vanguard Information Technology Index Fund ETF at 35%, and the Avantis® U.S. Small Cap Value ETF at 10%. Compared to a typical balanced portfolio, this one lacks diversification, focusing primarily on large-cap stocks. This concentrated approach can lead to higher returns during market upswings but also increases risk during downturns. To mitigate potential volatility, consider diversifying across more asset classes, such as bonds or international equities, to enhance stability.
Growth
Historically, this portfolio has shown impressive performance, with a Compound Annual Growth Rate (CAGR) of 18.20%. This number indicates strong growth, outperforming many benchmarks. However, the max drawdown of -34.27% reveals vulnerability in volatile markets. The high concentration in U.S. equities, especially in tech, can lead to pronounced swings. To better safeguard against future downturns, consider a more balanced allocation that includes defensive sectors or assets. Remember, past performance doesn't guarantee future results, so it's wise to prepare for potential market shifts.
Projection
The Monte Carlo simulation, which uses historical data to estimate future performance, suggests a wide range of potential outcomes for this portfolio. With a 50th percentile projection of 728% growth, the portfolio shows strong potential. However, the 5th percentile projects a more modest 65.6% growth, highlighting possible risks. While these simulations provide valuable insights, they are not foolproof predictions. They rely on past data and can't account for unforeseen market events. To prepare for various scenarios, consider stress-testing the portfolio under different market conditions and adjusting allocations as needed.
Asset classes
- Stocks 100%
The portfolio's 100% allocation to stocks limits diversification, making it vulnerable to equity market volatility. While stocks offer growth potential, they can also be risky. A more diversified portfolio typically includes a mix of asset classes like bonds, which can provide stability and income. This portfolio's lack of diversification may lead to higher volatility and risk. To enhance diversification, consider incorporating other asset classes that can act as a buffer during market downturns. This approach can help achieve a more balanced risk-return profile.
Sectors
- Technology 53%
- Financials 11%
- Consumer Discretionary 8%
- Health Care 6%
- Industrials 6%
- Telecommunications 6%
- Consumer Staples 4%
- Energy 3%
- Basic Materials 2%
- Utilities 1%
- Real Estate 1%
The portfolio is heavily concentrated in the technology sector, which accounts for 53% of its allocation. This tech-heavy focus can drive growth but also increases exposure to sector-specific risks, such as regulatory changes or tech market downturns. Other sectors like financial services and consumer cyclicals have moderate representation, but sectors like utilities and real estate are underrepresented. To reduce sector-specific risks, consider diversifying into sectors with different growth cycles, such as healthcare or consumer staples, which can provide stability during tech sector volatility.
Regions
- North America 99%
With 99% of the portfolio's assets in North America, geographic diversification is limited. This concentration exposes the portfolio to regional economic and political risks. While U.S. markets have performed well recently, global diversification can help mitigate regional downturns. Consider allocating a portion of the portfolio to international markets, including emerging economies, to capture growth opportunities and reduce dependence on the U.S. market. This strategy can enhance risk-adjusted returns by spreading exposure across different economic environments.
Market capitalization
- Mega-cap 44%
- Large-cap 28%
- Mid-cap 14%
- Small-cap 8%
- Micro-cap 6%
The portfolio's market capitalization is skewed towards mega-cap stocks at 44%, with significant exposure to big and medium-cap stocks. Small and micro-cap stocks make up only 14% of the portfolio. While larger companies tend to be more stable, smaller companies often offer higher growth potential. However, they also come with increased volatility. To balance growth and risk, consider adjusting the allocation to include more small and micro-cap stocks, which can provide diversification benefits and potentially higher returns over the long term.
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 identifies the best possible risk-return ratio for a given set of assets. This process involves adjusting the allocation to achieve the highest expected return for a given level of risk. By reallocating within the current assets, the portfolio can potentially enhance its efficiency without introducing new holdings. However, it's crucial to ensure that any changes align with the investor's goals and risk tolerance. Optimization focuses on maximizing returns relative to risk, not necessarily improving diversification.
Dividends
- Avantis® U.S. Small Cap Value ETF 1.40%
- Vanguard Information Technology Index Fund ETF Shares 0.40%
- Vanguard S&P 500 ETF 1.00%
- Weighted yield (per year) 0.83%
This portfolio's dividend yield is relatively low at 0.83%, reflecting its focus on growth rather than income. While dividends can provide a steady income stream and enhance total returns, growth-focused portfolios often prioritize capital appreciation. For investors seeking income, consider incorporating dividend-paying stocks or funds that offer higher yields. This strategy can provide a balance between growth and income, helping to meet various financial goals. However, ensure that any changes align with the overall investment strategy and risk tolerance.
Ongoing product costs
- Avantis® U.S. Small Cap Value ETF 0.25%
- Vanguard Information Technology Index Fund ETF Shares 0.10%
- Vanguard S&P 500 ETF 0.03%
- Weighted costs total (per year) 0.08%
The portfolio's total expense ratio (TER) of 0.08% is impressively low, indicating cost efficiency. Lower costs can significantly improve long-term returns by reducing the drag on performance. This cost structure aligns well with best practices for maintaining a cost-effective portfolio. However, it's essential to regularly review and compare costs to ensure they remain competitive. While the current cost structure is favorable, staying informed about any fee changes or lower-cost alternatives can further enhance the portfolio's cost-effectiveness and overall performance.
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