Moderately Diversified Growth Portfolio with High Risk Score and Strong Historical Performance

Report created on Dec 4, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio is composed primarily of ETFs, with a strong focus on U.S. equities, particularly large-cap stocks. It is diversified across different sectors, but there is a noticeable concentration in technology stocks. The allocation includes a mix of growth and value strategies, with a slight tilt towards growth. This composition suggests a focus on capital appreciation, with moderate exposure to dividend-paying stocks. The presence of emerging market exposure adds a layer of diversification, though it remains a small portion of the overall allocation.

Growth Info

Historically, the portfolio has delivered impressive returns, with a compound annual growth rate (CAGR) of 17.72%. However, it also experienced a significant maximum drawdown of -34.01%, highlighting the risks associated with its growth-oriented strategy. The portfolio's performance has been driven by a few key days, with 90% of returns generated in just 18 days. This indicates a reliance on market timing and the potential for volatility. Despite these risks, the strong historical returns are a positive indicator of its potential for future growth.

Projection Info

Using a Monte Carlo simulation, which models potential future returns by simulating a large number of possible market scenarios, the portfolio shows promising potential. Assuming a hypothetical initial investment, the median projected return is 704.33%, with a high probability of positive outcomes. The annualized return across all simulations is 18.82%, suggesting robust growth potential. However, the range of outcomes also reflects the inherent risk, with a 5th percentile return of 93.9%. This reinforces the need to balance potential rewards with the associated risks.

Asset classes Info

  • Stocks
    99%
  • Cash
    1%

The portfolio is heavily weighted towards stocks, with a negligible allocation to cash and other asset classes. This concentration in equities aligns with its growth profile, aiming for higher returns over the long term. While this approach can maximize growth potential, it also increases exposure to market volatility. Diversifying into other asset classes, such as bonds, could help mitigate risk and provide more stability during market downturns. However, for investors with a high risk tolerance, the current allocation may be suitable.

Sectors Info

  • Technology
    38%
  • Financials
    14%
  • Consumer Discretionary
    9%
  • Industrials
    8%
  • Health Care
    8%
  • Consumer Staples
    6%
  • Energy
    6%
  • Telecommunications
    6%
  • Basic Materials
    2%
  • Utilities
    1%
  • Real Estate
    1%

The sector allocation is dominated by technology, which represents over a third of the portfolio. This concentration reflects a strong conviction in the sector's growth potential but also exposes the portfolio to sector-specific risks. Other sectors, such as financial services and consumer cyclicals, provide some diversification, but their impact is limited. A more balanced sector allocation could reduce risk by spreading exposure across different economic cycles. This would help cushion the portfolio against downturns in any single sector.

Regions Info

  • North America
    89%
  • Asia Emerging
    6%
  • Asia Developed
    2%
  • Africa/Middle East
    1%
  • Latin America
    1%
  • Europe Developed
    1%

Geographically, the portfolio is heavily concentrated in North America, with limited exposure to other regions. This reflects a focus on the U.S. market, which has historically delivered strong returns. However, such concentration can increase vulnerability to regional economic downturns. Expanding geographic diversification could help mitigate this risk by spreading exposure to different markets and economic conditions. While the emerging markets allocation provides some diversification, increasing exposure to developed markets outside North America could enhance the portfolio's resilience.

Redundant positions Info

  • Vanguard S&P 500 ETF
    SPDR® Portfolio S&P 500 ETF
    High correlation

The portfolio contains highly correlated assets, particularly between the Vanguard S&P 500 ETF and the SPDR® Portfolio S&P 500 ETF. This overlap reduces diversification benefits, as these assets tend to move in the same direction. Reducing redundancy by selecting distinct ETFs or funds could enhance diversification and improve risk-adjusted returns. Evaluating the correlation between other assets can help identify additional opportunities to optimize the portfolio's composition and reduce overall 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 can be optimized by addressing the overlap in highly correlated assets, which currently offers limited diversification benefits. By removing or replacing these redundant positions, the portfolio can achieve a more efficient allocation. Investors can adjust their risk exposure by moving along the efficient frontier, either increasing risk for potentially higher returns or reducing risk for more stability. However, before optimizing, it's crucial to ensure the portfolio aligns with the investor's risk tolerance and financial goals. This approach provides a foundation for strategic adjustments.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Schwab U.S. Dividend Equity ETF 3.30%
  • SPDR® Portfolio S&P 500 ETF 1.20%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard FTSE Emerging Markets Index Fund ETF Shares 2.60%
  • Weighted yield (per year) 1.67%

The portfolio offers a moderate dividend yield of 1.67%, with contributions from various ETFs. The Schwab U.S. Dividend Equity ETF provides the highest yield, enhancing income potential. While dividends are not the primary focus of this growth-oriented portfolio, they can provide a steady income stream and contribute to total returns. Investors seeking higher income may consider increasing exposure to dividend-focused assets. However, this should be balanced with the portfolio's growth objectives to maintain its overall strategy.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • SPDR® Portfolio S&P 500 ETF 0.02%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard FTSE Emerging Markets Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.08%

The portfolio's total expense ratio (TER) is 0.08%, which is relatively low and helps maximize net returns. This cost efficiency is achieved through the use of low-cost ETFs, which is a positive aspect of the portfolio. Keeping investment costs low is crucial for enhancing long-term returns, especially in a growth-oriented portfolio. Monitoring and managing expenses can help maintain this cost advantage. Investors should continue to prioritize low-cost investment options to optimize net returns and support the portfolio's growth objectives.

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