A growth-focused portfolio with low diversity and high correlation in large-cap U.S. equities

Report created on Jan 20, 2025

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

This portfolio consists of two ETFs, each representing 50% of the total allocation: the Schwab U.S. Large-Cap Growth ETF and the Vanguard S&P 500 ETF. Both ETFs focus on U.S. large-cap stocks, which results in low diversification. Compared to a more diversified benchmark, this portfolio lacks exposure to international markets and other asset classes like bonds or real estate. This concentrated structure could lead to higher volatility, especially in market downturns. To enhance diversification, consider adding assets from different regions or asset classes.

Growth Info

Historically, this portfolio has shown strong performance with a Compound Annual Growth Rate (CAGR) of 15.93%. This indicates a robust growth trajectory, outperforming many traditional benchmarks. However, it has also faced significant drawdowns, with a maximum of -33.15%, highlighting potential volatility. While past performance can offer insights, it's important to remember that it doesn't guarantee future results. To potentially smooth out returns, consider introducing more defensive assets that might reduce volatility during market downturns.

Projection Info

The Monte Carlo simulation projects a wide range of potential outcomes for this portfolio, with a 50th percentile end value of 653.6%. This technique uses historical data to predict future performance, but it's important to note that these are hypothetical scenarios. While the simulations show a high probability of positive returns, the wide range also indicates potential risk. To better manage this risk, consider adjusting the portfolio to include assets with different risk profiles, which could help stabilize future returns.

Asset classes Info

  • Stocks
    100%

With 100% allocation to stocks, this portfolio is heavily reliant on equity markets. This lack of diversification across asset classes can lead to increased risk, as all investments are subject to the same market forces. In comparison, a more balanced portfolio might include bonds or alternative investments to mitigate risk. By incorporating different asset classes, you can potentially reduce volatility and improve overall risk-adjusted returns, especially during periods of market stress.

Sectors Info

  • Technology
    41%
  • Consumer Discretionary
    12%
  • Telecommunications
    11%
  • Health Care
    10%
  • Financials
    10%
  • Industrials
    5%
  • Consumer Staples
    4%
  • Energy
    2%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    1%

The portfolio is predominantly invested in the technology sector, which constitutes 41% of the allocation. This concentration can lead to higher volatility, especially during periods of regulatory scrutiny or interest rate hikes that often affect tech stocks. While tech has been a strong performer, diversifying into other sectors like healthcare or consumer staples could provide more stability. A more balanced sector allocation would align better with common benchmarks and reduce sector-specific risks.

Regions Info

  • North America
    100%

The portfolio's geographic exposure is entirely in North America, with no allocation to international markets. This lack of geographic diversification can limit growth opportunities and increase risk related to U.S.-specific economic or political events. In contrast, benchmarks often include a mix of global equities to capture diverse growth prospects. To improve diversification, consider adding international stocks, which can provide exposure to different economic cycles and potentially enhance returns.

Market capitalization Info

  • Mega-cap
    57%
  • Large-cap
    28%
  • Mid-cap
    14%
  • Small-cap
    1%

The portfolio is heavily weighted towards mega-cap stocks, with 57% of the allocation. This focus on large companies can provide stability but may miss out on the growth potential of smaller firms. A more balanced approach, including mid-cap and small-cap stocks, could enhance diversification and capture different growth opportunities. While mega-caps are typically less volatile, introducing a mix of market capitalizations could improve the portfolio's risk-return profile.

Redundant positions Info

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

The high correlation between the Schwab U.S. Large-Cap Growth ETF and the Vanguard S&P 500 ETF suggests limited diversification benefits. Correlated assets tend to move together, which can amplify losses during market downturns. This portfolio's reliance on similar assets reduces its ability to mitigate risks through diversification. To enhance portfolio resilience, consider adding uncorrelated assets or those with lower correlation to existing holdings, such as international equities or bonds.

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.

To optimize risk versus return, consider the Efficient Frontier, which aims to maximize returns for a given level of risk. Currently, the portfolio's high correlation between assets limits its efficiency. By introducing more diversified assets, you can shift the portfolio closer to the Efficient Frontier. This approach focuses on achieving the best possible risk-return ratio with the current allocation. Adjusting the mix of assets could enhance the portfolio's performance while maintaining its growth focus.

Dividends Info

  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 0.80%

The portfolio's dividend yield is relatively modest at 0.80%, reflecting its focus on growth-oriented stocks. Dividends can provide a steady income stream and reduce reliance on capital gains for returns. For investors seeking income, incorporating higher-yielding assets might be beneficial. However, given the growth focus, this yield aligns with the portfolio's objectives. Balancing growth with income-generating assets could offer more stability and diversification to meet varied financial goals.

Ongoing product costs Info

  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.04%

The portfolio boasts impressively low costs, with a Total Expense Ratio (TER) of 0.04%. This efficient cost structure supports better long-term performance by minimizing the drag on returns. Keeping expenses low is crucial, as high fees can erode gains over time. In this case, the portfolio is well-aligned with best practices for cost management. Maintaining this low-cost focus while enhancing diversification could further optimize the portfolio's risk-return profile.

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