Portfolio Leans Heavily Towards North American Stocks With High Risk and Low Diversification

Risk profile

  • Secure
    Speculative

The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.

Diversification profile

  • Focused
    Diversified

The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.

What type of investor this portfolio is suitable for

Growth Investors

This portfolio is suitable for growth-oriented investors with a high risk tolerance and a long-term investment horizon. Such investors are typically focused on capital appreciation and are willing to endure significant market volatility. They are comfortable with the potential for substantial drawdowns in exchange for the possibility of higher returns. These investors often have a solid financial foundation and are not reliant on their investments for immediate income. Their primary goal is to build wealth over time, leveraging market opportunities while accepting the inherent risks associated with equity-heavy portfolios.

Positions

  • Schwab U.S. Dividend Equity ETF
    SCHD - US8085247976
    20.50%
  • Schwab U.S. Large-Cap Value ETF
    SCHV - US8085244098
    19.50%
  • SPDR® Portfolio S&P 500 ETF
    SPLG - US78464A8541
    18.00%
  • Schwab U.S. Large-Cap Growth ETF
    SCHG - US8085243009
    16.00%
  • Avantis® U.S. Small Cap Value ETF
    AVUV - US0250728773
    14.00%
  • VanEck Semiconductor ETF
    SMH - US92189F6768
    12.00%

This portfolio is predominantly composed of ETFs, with a strong inclination towards U.S. equities. The Schwab U.S. Dividend Equity ETF and Schwab U.S. Large-Cap Value ETF are the largest holdings, making up a combined 40% of the portfolio. This setup indicates a focus on dividends and large-cap stocks. While ETFs offer diversification within their holdings, the overall portfolio lacks diversity due to its concentration in a few major funds. This composition might expose the portfolio to market-specific risks, suggesting a need for more varied asset allocation to mitigate potential downsides.

Growth Info

Historically, the portfolio has shown strong performance with a CAGR of 19.5%. However, this has come with significant volatility, as evidenced by a maximum drawdown of -35.18%. The returns are concentrated within a small number of days, indicating that missing out on these key days could significantly impact overall performance. This past performance highlights the potential for substantial gains, but also underscores the portfolio's susceptibility to market fluctuations. To maintain a balance between risk and return, it might be beneficial to consider strategies that can reduce volatility while still capturing growth opportunities.

Projection Info

Using a Monte Carlo simulation, which models potential future outcomes based on historical data, this portfolio shows promising growth prospects. With an assumed initial investment, the 50th percentile projection suggests an increase of 1,142.62%, and 67th percentile at 1,739.95%. This indicates a high likelihood of positive returns, as 993 out of 1,000 simulations were favorable. While the potential for high returns exists, the variability in outcomes also suggests a need for caution. Diversifying risk across different asset classes could help in achieving more stable long-term growth.

Asset classes

  • Stocks
    100%
  • Cash
    0%

The portfolio is heavily weighted towards stocks, with 99.92% in equities and a negligible amount in cash. This indicates a high-risk, high-reward strategy, suitable for those with a strong risk appetite. While equities can offer significant returns, they also expose the portfolio to market volatility. Introducing other asset classes, such as bonds or commodities, could provide a buffer against market downturns. A more balanced asset allocation can help maintain portfolio stability and reduce overall risk, aligning better with long-term investment goals.

Sectors

  • Technology
    31%
  • Financials
    16%
  • Consumer Discretionary
    10%
  • Industrials
    10%
  • Health Care
    9%
  • Energy
    7%
  • Consumer Staples
    7%
  • Telecommunications
    5%
  • Basic Materials
    2%
  • Utilities
    2%
  • Real Estate
    1%

Sector allocation within the portfolio is skewed towards technology, which comprises over 31% of the holdings. Financial services and consumer cyclicals also hold significant portions. This concentration in a few sectors increases vulnerability to sector-specific downturns. While technology has been a strong performer, reliance on a single sector can amplify risks. A more balanced sector allocation could enhance resilience against market fluctuations. Diversifying across various industries can provide stability and reduce the impact of adverse events in any single sector.

Regions

  • North America
    97%
  • Asia Developed
    2%
  • Europe Developed
    1%
  • Latin America
    0%
  • Asia Emerging
    0%
  • Africa/Middle East
    0%

Geographically, the portfolio is overwhelmingly focused on North America, with 96.82% of assets allocated there. This heavy concentration exposes the portfolio to regional economic and political risks. While the U.S. market is a major global player, diversification into other regions could reduce potential vulnerabilities. Allocating a portion of the portfolio to international markets can help capture growth opportunities in emerging economies and provide a hedge against regional downturns. A more globally balanced portfolio can offer enhanced stability and growth potential.

Redundant positions

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

The portfolio contains several highly correlated assets, particularly among the Schwab ETFs and the SPDR® Portfolio S&P 500 ETF. This high correlation means these assets are likely to move in tandem, reducing the overall diversification benefit. While these funds offer exposure to different market segments, their overlapping nature limits the portfolio's ability to mitigate risks. To improve diversification, incorporating assets with low correlation to existing holdings can help balance the portfolio. This approach can enhance risk-adjusted returns and provide a smoother investment journey.

Dividends

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Schwab U.S. Dividend Equity ETF 3.40%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Schwab U.S. Large-Cap Value ETF 3.10%
  • VanEck Semiconductor ETF 0.40%
  • SPDR® Portfolio S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.84%

The portfolio's dividend yield stands at 1.84%, with the Schwab U.S. Dividend Equity ETF being the primary contributor at 3.4%. While dividends provide a steady income stream, the overall yield is moderate. Focusing on dividend-paying stocks can offer some stability, but relying too heavily on them may limit growth potential. Balancing between growth and income-oriented investments could enhance total returns. Reinvesting dividends can also compound growth over time, contributing to long-term wealth accumulation and aligning with the investor's financial goals.

Ongoing product costs

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Schwab U.S. Large-Cap Value ETF 0.04%
  • VanEck Semiconductor ETF 0.35%
  • SPDR® Portfolio S&P 500 ETF 0.02%
  • Weighted costs total (per year) 0.11%

The portfolio's total expense ratio (TER) is 0.11%, which is relatively low and beneficial for long-term growth. Keeping investment costs down is crucial for maximizing returns. The VanEck Semiconductor ETF has the highest expense ratio at 0.35%, while the SPDR® Portfolio S&P 500 ETF has the lowest at 0.02%. Although these costs are minimal, they can add up over time. Ensuring a cost-effective strategy involves regularly reviewing expense ratios and considering lower-cost alternatives if necessary. Staying mindful of fees can significantly enhance net returns over the investment horizon.

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.

The current portfolio is not optimal due to the high correlation among its assets, which limits diversification benefits. The efficient frontier concept suggests that the optimal portfolio offers the highest expected return for a given level of risk. In this case, the overlapping nature of the investments prevents the portfolio from reaching its full potential on the efficient frontier. To enhance optimization, consider diversifying into low-correlation assets, which can improve the risk-return profile. This strategy can help achieve a more balanced and efficient portfolio, aligning with long-term financial objectives.

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