Growth-Focused Portfolio with Strong U.S. Equity Exposure and High Correlation Among Holdings

Report created on Jul 24, 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 primarily of ETFs, with a strong emphasis on U.S. equities. The largest positions are in Vanguard Total Stock Market Index Fund ETF Shares and Vanguard S&P 500 ETF, making up 40% and 21% of the portfolio, respectively. The overall allocation leans heavily towards stocks, with a small portion in bonds and other asset classes. This composition suggests a growth-oriented strategy, aiming for capital appreciation over the long term. To enhance diversification, consider balancing the allocation between different asset classes more evenly, potentially including more bonds or other low-correlation assets.

Growth Info

Historically, the portfolio has performed well, with a compound annual growth rate (CAGR) of 13.59%. However, it has also experienced significant volatility, as indicated by a maximum drawdown of -33.92%. This performance reflects the growth focus of the portfolio, which can lead to substantial gains but also exposes the investor to potential losses during market downturns. To manage this risk, consider incorporating more stable, income-generating assets, such as bonds, to mitigate the impact of market fluctuations and provide a buffer during periods of market stress.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, we project potential future outcomes for the portfolio. The simulation indicates a median return of 440.48% over the investment horizon, with 987 simulations resulting in positive returns. This suggests a high probability of achieving favorable outcomes, although the range of possible results is wide. Monte Carlo simulations provide a statistical approach to understanding potential future performance, highlighting the importance of diversification and risk management. Consider maintaining a balanced approach to investing, focusing on long-term goals while being prepared for short-term fluctuations.

Asset classes Info

  • Stocks
    99%
  • Bonds
    1%

The portfolio is heavily weighted towards equities, with stocks comprising over 98% of the total allocation. Bonds and cash make up a small fraction, which aligns with the growth-oriented strategy. While equities offer high potential returns, they also come with increased risk. A more balanced allocation across asset classes could provide stability and reduce overall portfolio risk. Consider gradually increasing exposure to bonds or other fixed-income instruments to achieve a more diversified asset mix, which can help cushion against market volatility and provide more consistent returns.

Sectors Info

  • Technology
    32%
  • Financials
    13%
  • Consumer Discretionary
    10%
  • Health Care
    10%
  • Industrials
    9%
  • Telecommunications
    7%
  • Consumer Staples
    5%
  • Energy
    3%
  • Basic Materials
    3%
  • Real Estate
    3%
  • Utilities
    3%

Sector allocation is dominated by technology, accounting for over 32% of the portfolio. Other significant sectors include financial services, consumer cyclicals, and healthcare. This concentration in certain sectors can lead to enhanced returns during favorable market conditions but also increases exposure to sector-specific risks. To mitigate this, consider redistributing some investments to underrepresented sectors, ensuring a more balanced sector allocation. This can help reduce the impact of sector downturns and improve overall portfolio resilience, providing a more stable performance across different economic cycles.

Regions Info

  • North America
    84%
  • Europe Developed
    6%
  • Asia Emerging
    2%
  • Asia Developed
    2%
  • Japan
    2%
  • Australasia
    1%

Geographically, the portfolio is heavily concentrated in North America, with over 84% of assets allocated to this region. While this reflects a strong focus on U.S. markets, it limits exposure to international opportunities. Diversifying geographically can reduce region-specific risks and provide access to growth opportunities in emerging and developed markets outside of North America. Consider increasing the allocation to international markets to achieve better geographic diversification, which can enhance portfolio resilience and offer a broader range of investment opportunities.

Redundant positions Info

  • Schwab U.S. Dividend Equity ETF
    Schwab U.S. Large-Cap ETF
    Invesco QQQ Trust
    Vanguard Total Stock Market Index Fund ETF Shares
    Vanguard Small-Cap Index Fund ETF Shares
    Vanguard Mid-Cap Index Fund ETF Shares
    Vanguard S&P 500 ETF
    High correlation

The portfolio contains several highly correlated assets, particularly among U.S. equity ETFs. This high correlation indicates that these assets tend to move in the same direction, reducing the diversification benefits. While this can lead to strong performance during market upswings, it also increases vulnerability to market downturns. To improve diversification, consider incorporating assets with lower correlations, such as international equities or fixed-income securities. This can help create a more balanced portfolio, reducing overall risk and providing more stable returns across different market conditions.

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's high correlation among assets suggests that optimization may not be the best immediate focus. Instead, consider addressing the concentration in U.S. equities and technology sectors first. To create a riskier portfolio, increase exposure to equities or sectors with higher growth potential. Conversely, for a more conservative approach, shift towards bonds or low-volatility assets. Moving along the efficient frontier involves balancing risk and return according to personal preferences, achieving a tailored investment strategy that aligns with financial goals and risk tolerance.

Dividends Info

  • Vanguard Total Bond Market Index Fund ETF Shares 3.60%
  • Invesco QQQ Trust 0.60%
  • Schwab U.S. Dividend Equity ETF 3.40%
  • Schwab U.S. Large-Cap ETF 1.20%
  • VanEck Semiconductor ETF 0.40%
  • Vanguard Small-Cap Index Fund ETF Shares 1.30%
  • Vanguard Mid-Cap Index Fund ETF Shares 1.80%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.49%

The portfolio's dividend yield is relatively modest, at 1.49%. While some individual ETFs, like the Vanguard Total Bond Market Index Fund ETF Shares and Schwab U.S. Dividend Equity ETF, offer higher yields, the overall yield reflects the growth-oriented focus. Dividends can provide a steady income stream and help cushion against market volatility. To increase dividend income, consider reallocating funds towards higher-yielding assets or dividend-focused ETFs. This can enhance cash flow and provide a more balanced approach to achieving both growth and income objectives.

Ongoing product costs Info

  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • Invesco QQQ Trust 0.20%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap ETF 0.03%
  • VanEck Semiconductor ETF 0.35%
  • Vanguard Small-Cap Index Fund ETF Shares 0.05%
  • Vanguard Mid-Cap Index Fund ETF Shares 0.04%
  • Vanguard S&P 500 ETF 0.03%
  • 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) 0.07%

The portfolio's total expense ratio is low, at 0.07%, which is favorable for long-term growth. Lower costs mean more of the investment returns are retained, enhancing the compounding effect over time. This cost efficiency is a positive aspect of the portfolio, contributing to its overall performance. To maintain this advantage, continue prioritizing low-cost investment options and monitor expense ratios regularly. By keeping costs low, the portfolio can achieve better net returns, supporting long-term financial goals and maximizing the potential for wealth accumulation.

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