Growth-Oriented Portfolio with Low Diversification and High Correlation Among Assets

Report created on Dec 2, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

The portfolio is composed entirely of ETFs, with a strong emphasis on U.S.-based investments. It includes five ETFs: Schwab U.S. Dividend Equity, iShares Core S&P 500, Vanguard Growth Index Fund, Vanguard Value Index Fund, and Invesco S&P 500 Momentum. The allocation is relatively balanced, with each ETF holding a significant portion but leaning towards growth-oriented funds. This composition reflects a focus on capital appreciation, although it lacks diversification across geographies and asset classes, which could expose it to higher volatility.

Growth Info

Historically, the portfolio has performed impressively, with a compound annual growth rate (CAGR) of 18.72%. However, it has also experienced a maximum drawdown of -32.99%, indicating potential for significant losses during market downturns. The returns are concentrated, with 90% of them occurring over just 34 days, highlighting the portfolio's sensitivity to market timing. This performance suggests a high-risk, high-reward strategy. To mitigate risk, consider diversifying further or incorporating more stable assets.

Projection Info

A Monte Carlo simulation, which uses random sampling to predict future performance, was conducted with 1,000 simulations. Assuming a hypothetical initial investment, the results show a wide range of potential outcomes. The 5th percentile projects a return of 223.15%, while the median return is 1,052.67%. All simulations resulted in positive returns, with an annualized return of 20.83%. This indicates potential for strong future performance but also underscores the importance of managing risk and maintaining a diversified approach to withstand market fluctuations.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, with 99.85% of its assets in equities. This concentration in a single asset class can lead to increased risk, especially during periods of market volatility. While stocks offer growth potential, they also expose the portfolio to significant fluctuations. To enhance stability, consider introducing other asset classes, such as bonds or real estate, which can provide diversification benefits and reduce overall risk. Balancing growth and stability is key to achieving long-term investment goals.

Sectors Info

  • Technology
    28%
  • Financials
    16%
  • Health Care
    12%
  • Consumer Discretionary
    11%
  • Industrials
    9%
  • Telecommunications
    8%
  • Consumer Staples
    7%
  • Energy
    5%
  • Basic Materials
    2%
  • Utilities
    2%
  • Real Estate
    1%

Sector allocation is skewed towards technology, which comprises 27.60% of the portfolio. Other notable sectors include financial services, healthcare, and consumer cyclicals. This concentration in a few sectors increases exposure to sector-specific risks and limits diversification. While these sectors may offer growth opportunities, consider diversifying into underrepresented sectors to mitigate risk and capture potential gains across different areas of the market. A more balanced sector allocation can help smooth returns and reduce the impact of sector downturns.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is almost entirely focused on North America, with 99.40% of assets allocated there. This lack of geographic diversification exposes the portfolio to region-specific risks, such as economic downturns or regulatory changes. While the U.S. market has historically performed well, consider expanding into other regions to capture growth opportunities and reduce reliance on a single market. Diversifying geographically can help mitigate risks associated with local economic conditions and enhance the portfolio's resilience.

Redundant positions Info

  • iShares Core S&P 500 ETF
    Vanguard Growth Index Fund ETF Shares
    High correlation
  • Schwab U.S. Dividend Equity ETF
    Vanguard Value Index Fund ETF Shares
    High correlation

The portfolio exhibits high correlations among its assets, particularly between iShares Core S&P 500 ETF and Vanguard Growth Index Fund, as well as between Schwab U.S. Dividend Equity ETF and Vanguard Value Index Fund. This means these assets tend to move in the same direction, providing limited diversification benefits. To improve diversification, consider reducing exposure to highly correlated assets and introducing investments that are less correlated with the existing holdings. This can help smooth returns and reduce volatility.

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.

Before optimizing the portfolio, focus on addressing the high correlation among assets, which limits diversification benefits. Consider removing overlapping assets and introducing less correlated investments to enhance diversification. Moving along the efficient frontier can help achieve a riskier or more conservative portfolio, depending on individual preferences. A more conservative approach may involve adding stable, income-generating assets, while a riskier approach could focus on growth-oriented investments. Balancing risk and return is crucial for optimizing portfolio performance.

Dividends Info

  • iShares Core S&P 500 ETF 1.20%
  • Schwab U.S. Dividend Equity ETF 3.30%
  • Invesco S&P 500® Momentum ETF 0.40%
  • Vanguard Value Index Fund ETF Shares 2.20%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Weighted yield (per year) 1.59%

The portfolio has a total dividend yield of 1.59%, with the Schwab U.S. Dividend Equity ETF contributing the highest yield at 3.3%. While dividends provide a steady income stream, the overall yield is relatively modest. To enhance income generation, consider increasing allocation to higher-yielding assets or funds. However, it's important to balance the pursuit of income with the need for growth and diversification. A well-rounded approach can help achieve both income and capital appreciation goals.

Ongoing product costs Info

  • iShares Core S&P 500 ETF 0.03%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Invesco S&P 500® Momentum ETF 0.13%
  • Vanguard Value Index Fund ETF Shares 0.04%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Weighted costs total (per year) 0.05%

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