High-Risk Growth Portfolio with Low Diversification and Technology Overweight

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 an aggressive investor who is willing to take on higher risks for the potential of higher returns. Such an investor is likely focused on long-term growth and has a high risk tolerance. The ideal investment horizon for this portfolio is long-term, as it can withstand short-term volatility and market downturns. This investor is comfortable with significant exposure to the technology sector and is not overly concerned with short-term market fluctuations.

Positions

  • Schwab U.S. Dividend Equity ETF
    SCHD - US8085247976
    50.00%
  • Vanguard Information Technology Index Fund ETF Shares
    VGT - US92204A7028
    50.00%

This portfolio is composed of two main ETFs: Schwab U.S. Dividend Equity ETF and Vanguard Information Technology Index Fund ETF Shares, each making up 50% of the total allocation. This indicates a significant concentration in just two funds, leading to low diversification. Having a heavy allocation in technology and dividend equities can be a double-edged sword, offering potential high returns but also exposing the portfolio to sector-specific risks. To improve diversification, consider adding more asset classes or sectors to balance the risks and returns.

Growth

Historically, the portfolio has performed quite well with a Compound Annual Growth Rate (CAGR) of 16.93%. However, it has also experienced a significant maximum drawdown of -32.18%, indicating vulnerability during market downturns. The fact that 90% of returns are concentrated in just 40 days suggests high volatility. While the returns have been strong, the high drawdown and volatility may not be suitable for risk-averse investors. To mitigate this, consider adding more stable, low-volatility assets.

Projection

Using a Monte Carlo simulation with 1,000 runs, the portfolio's future performance was projected. Assuming a hypothetical initial investment, the 5th percentile outcome was 139.52%, while the median (50th percentile) was 766.39%, and the 67th percentile was 1,161.98%. With an annualized return of 18.31% across all simulations, the projections are optimistic but come with inherent risks. The high potential returns are balanced by the possibility of significant losses. To better manage risk, consider periodic portfolio reviews and rebalancing.

Asset classes

  • Stocks
    100%
  • Cash
    0%

The portfolio is almost entirely composed of stocks (99.77%), with a negligible amount in cash (0.23%). This high allocation to equities is typical for a growth-oriented portfolio but also increases exposure to market volatility. Diversifying into other asset classes such as bonds or real estate could provide more stability and reduce overall risk. This is particularly important for those nearing retirement or with lower risk tolerance.

Sectors

  • Technology
    54%
  • Financials
    9%
  • Health Care
    8%
  • Consumer Staples
    7%
  • Industrials
    7%
  • Energy
    7%
  • Consumer Discretionary
    5%
  • Telecommunications
    2%
  • Basic Materials
    1%
  • Utilities
    0%

Sector allocation is heavily skewed towards technology, which makes up 54.06% of the portfolio. Other sectors like financial services, healthcare, and consumer defensive have much smaller allocations. This lack of sector diversification exposes the portfolio to risks specific to the technology sector, such as regulatory changes or market disruptions. To mitigate these risks, consider reallocating some funds to underrepresented sectors to achieve a more balanced portfolio.

Regions

  • North America
    99%
  • Europe Developed
    1%
  • Asia Developed
    0%
  • Latin America
    0%
  • Africa/Middle East
    0%

Geographically, the portfolio is overwhelmingly concentrated in North America, with 99.21% of assets. Minimal exposure to Europe, Asia, Latin America, and Africa/Middle East indicates a lack of international diversification. While the U.S. market has been strong, global diversification can provide a hedge against country-specific risks. To enhance geographic diversification, consider adding international funds or ETFs to the portfolio.

Dividends

  • Schwab U.S. Dividend Equity ETF 3.40%
  • Vanguard Information Technology Index Fund ETF Shares 0.70%
  • Weighted yield (per year) 2.05%

The Schwab U.S. Dividend Equity ETF provides some dividend income, but the overall portfolio yield is not specified. Dividends can offer a steady income stream and reduce overall portfolio volatility. For those seeking income, consider increasing the allocation to dividend-paying stocks or funds. This can provide a cushion during market downturns and contribute to total returns.

Ongoing product costs

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Weighted costs total (per year) 0.08%

The portfolio's total expense ratio (TER) is relatively low at 0.08%, which is beneficial for long-term growth as lower costs mean more of the returns are retained. Both ETFs have low expense ratios, with Schwab U.S. Dividend Equity ETF at 0.06% and Vanguard Information Technology Index Fund ETF Shares at 0.1%. Keeping costs low is a good practice, but always ensure that the low-cost options align with the overall investment strategy and risk tolerance.

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