Growth-Oriented Portfolio with Strong Diversification but High Correlation Among Assets

Report created on Jul 6, 2024

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.

Positions

The portfolio is composed entirely of ETFs, with a strong focus on U.S. equities. The Vanguard Total Stock Market Index Fund ETF Shares is the largest holding at 40%, followed by Schwab U.S. Large-Cap Growth ETF at 30%. Avantis® U.S. Equity ETF and Vanguard Total International Stock Index Fund ETF Shares make up the remaining 30%, equally split. This composition indicates a growth-oriented approach, heavily weighted towards domestic equities. With a single asset class focus, this portfolio lacks diversification in terms of asset classes but compensates with a broad sector and geographic allocation.

Growth Info

Historically, the portfolio has performed impressively, boasting a compound annual growth rate (CAGR) of 17.27%. However, it has also experienced a significant maximum drawdown of -34.23%, highlighting the risks associated with its growth-oriented nature. The portfolio's returns are concentrated, with 90% of returns occurring in just 18 days. This suggests that while the portfolio has delivered strong returns, it is also susceptible to volatility. Investors should be cautious during market downturns, considering strategies to mitigate potential losses.

Projection Info

Using a Monte Carlo simulation, which provides a range of possible outcomes by running numerous scenarios, the portfolio shows promising future projections. With 1,000 simulations, the median (50th percentile) projected return is 642.93%, and the 67th percentile reaches 953.27%. The majority of simulations (989 out of 1,000) resulted in positive returns, with an annualized return of 17.31%. This suggests a strong potential for future growth, but investors should remain aware of the inherent risks and volatility.

Asset classes Info

  • Stocks
    100%

The portfolio is predominantly invested in stocks, accounting for 99.66% of the holdings. A small fraction is allocated to cash and other categories, which provides minimal diversification. While this stock-heavy allocation aligns with a growth strategy, it increases exposure to market volatility. Investors should consider incorporating other asset classes, such as bonds or real estate, to mitigate risk and improve diversification. This could help stabilize returns and provide a buffer during market downturns.

Sectors Info

  • Technology
    32%
  • Financials
    13%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Telecommunications
    9%
  • Industrials
    9%
  • Consumer Staples
    5%
  • Energy
    4%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    2%

The sector allocation is broad, with significant investments in technology (32.14%), financial services (13.31%), and consumer cyclicals (11.45%). This sector diversity offers some protection against sector-specific risks, but the high concentration in technology could amplify volatility. Investors should monitor sector exposures and consider rebalancing if any sector becomes overly dominant. A more balanced sector allocation can reduce risk and enhance portfolio stability, especially during sector-specific downturns.

Regions Info

  • North America
    86%
  • Europe Developed
    6%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

Geographically, the portfolio is heavily weighted towards North America, comprising 85.74% of the holdings. Other regions like Europe Developed, Asia Emerging, and Japan hold smaller allocations. While this focus on North America aligns with a U.S.-centric growth strategy, it limits exposure to global opportunities. Investors might consider increasing allocations to international markets to benefit from global economic growth and reduce regional risk. Diversifying geographically can also help mitigate currency risks.

Redundant positions Info

  • Schwab U.S. Large-Cap Growth ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    Avantis® U.S. Equity ETF
    High correlation

The portfolio exhibits high correlation among its key holdings, particularly between Schwab U.S. Large-Cap Growth ETF, Vanguard Total Stock Market Index Fund ETF Shares, and Avantis® U.S. Equity ETF. This high correlation means these assets tend to move in the same direction, reducing diversification benefits. Investors should evaluate the overlap and consider replacing or reducing holdings with similar movements. Introducing assets with lower correlation can enhance diversification and reduce 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.

To optimize the portfolio, addressing the high correlation among assets should be a priority. By reducing overlapping holdings, the portfolio can achieve better diversification and potentially lower risk. Moving along the efficient frontier, investors can adjust their portfolio to either increase risk for higher potential returns or decrease risk for more stability. This involves balancing the portfolio's composition to align with personal risk tolerance and financial goals, ensuring the portfolio remains well-suited to the investor's objectives.

Dividends Info

  • Avantis® U.S. Equity ETF 1.20%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.27%

The portfolio's dividend yield stands at 1.27%, with the Vanguard Total International Stock Index Fund ETF Shares contributing the highest yield at 3.0%. While not the primary focus of a growth portfolio, dividends can provide a stable income stream and help offset volatility. Investors should review dividend policies and consider whether reinvesting dividends or receiving them as income aligns with their financial goals. A balanced approach can enhance total returns while maintaining growth potential.

Ongoing product costs Info

  • Avantis® U.S. Equity ETF 0.15%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • 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) 0.06%

The portfolio's total expense ratio (TER) is 0.06%, reflecting a cost-effective investment strategy. With low expense ratios across all ETFs, the portfolio minimizes costs, enhancing net returns. Keeping costs low is crucial for long-term investment success, as high fees can erode returns over time. Investors should continue to monitor expense ratios and consider cost-effective alternatives if necessary. Maintaining a low-cost structure will support the portfolio's growth objectives and maximize returns.

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