Portfolio with High Risk and Low Diversity Needs Better Diversification for Optimal Growth

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 suits an investor with a high-risk tolerance seeking growth over income. They likely have a long investment horizon and are comfortable with market volatility, aiming for substantial capital appreciation. Their goals may include maximizing returns and building wealth over the long term. Such an investor values the potential for high returns despite the risk of significant drawdowns. They may prioritize growth sectors and are open to exploring further diversification to optimize performance.

Positions

  • Invesco NASDAQ 100 ETF
    QQQM - US46138G6492
    50.00%
  • Vanguard S&P 500 ETF
    VOO - US9229083632
    50.00%

The portfolio is composed of two ETFs: Invesco NASDAQ 100 and Vanguard S&P 500, each making up 50% of the portfolio. This results in a low diversification level, as it is heavily concentrated in large-cap U.S. stocks. While this composition offers exposure to major market indices, it lacks the diversity that could potentially reduce risk and enhance returns. To improve the portfolio's resilience and performance, consider incorporating a broader range of asset classes and sectors that align with your growth objectives.

Growth Info

Historically, the portfolio has shown a robust compound annual growth rate (CAGR) of 16.06%, indicating strong past performance. However, it also experienced a significant maximum drawdown of -29.62%, highlighting its vulnerability during market downturns. With only 19 days contributing to 90% of returns, the portfolio's performance has been driven by a few volatile days. This suggests a high-risk, high-reward profile. To manage risk better, consider adding more stable assets that could cushion the portfolio during market turbulence.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio shows an annualized return of 17.2%. This simulation provides a range of possible future outcomes based on historical data. The 5th percentile projects a 126.21% return, while the median is 684.6%, and the 67th percentile reaches 986.47%. With 998 simulations showing positive returns, the outlook appears optimistic. However, the high variance suggests a need for diversification to stabilize potential future returns and reduce the impact of market volatility.

Asset classes

  • Stocks
    100%
  • Cash
    0%

The portfolio is heavily weighted in stocks, comprising 99.94% of the total allocation, with a negligible cash position. This concentration in equities can lead to high volatility and potential losses during market downturns. While stocks offer growth potential, it's crucial to balance them with other asset classes to mitigate risk. Consider diversifying into bonds or alternative investments to create a more balanced portfolio that aligns with your risk tolerance and growth objectives.

Sectors

  • Technology
    42%
  • Telecommunications
    13%
  • Consumer Discretionary
    12%
  • Health Care
    8%
  • Financials
    7%
  • Consumer Staples
    6%
  • Industrials
    6%
  • Energy
    2%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    1%

The sector allocation is heavily skewed towards Technology, representing 42.04% of the portfolio, followed by Communication Services and Consumer Cyclicals. This concentration in a few sectors increases the portfolio's susceptibility to sector-specific risks and market fluctuations. While these sectors have shown strong growth, it's essential to diversify across a broader range of industries to reduce risk and enhance long-term stability. Consider reallocating assets to underrepresented sectors to achieve a more balanced sector distribution.

Regions

  • North America
    98%
  • Europe Developed
    1%
  • Latin America
    0%
  • Asia Emerging
    0%
  • Asia Developed
    0%

The portfolio's geographic composition is predominantly focused on North America, accounting for 98.49% of the allocation. This lack of geographic diversity exposes the portfolio to regional economic and political risks. While the U.S. market has been a strong performer, diversification into international markets can provide exposure to different growth opportunities and reduce regional risk. Consider adding investments from Europe, Asia, and emerging markets to achieve a more globally diversified portfolio.

Redundant positions

  • Invesco NASDAQ 100 ETF
    Vanguard S&P 500 ETF
    High correlation

The assets in the portfolio, Invesco NASDAQ 100 ETF and Vanguard S&P 500 ETF, are highly correlated. This means they tend to move in the same direction, offering limited diversification benefits. High correlation can lead to increased risk during market downturns, as both assets are likely to decline simultaneously. To improve diversification and reduce risk, consider incorporating assets with low correlation to these ETFs, providing a buffer against market volatility and enhancing the portfolio's overall stability.

Dividends

  • Invesco NASDAQ 100 ETF 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 0.90%

The portfolio's dividend yield is relatively low at 0.9%, with Invesco NASDAQ 100 ETF yielding 0.6% and Vanguard S&P 500 ETF yielding 1.2%. While dividends can provide a steady income stream, the current yield indicates a focus on growth rather than income generation. To enhance income potential, consider including higher-yielding assets or dividend-focused funds. This can provide a balance between capital appreciation and income generation, catering to different financial goals and risk preferences.

Ongoing product costs

  • Invesco NASDAQ 100 ETF 0.15%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.09%

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.

The portfolio optimization chart suggests focusing on diversification before attempting optimization. By reducing the overlap of highly correlated assets, the portfolio can achieve better risk-adjusted returns. Moving along the efficient frontier, investors can either increase risk for potentially higher returns or decrease risk for more stability. To create a more conservative portfolio, consider incorporating bonds or other low-risk assets. For a riskier portfolio, focus on growth-oriented stocks or sectors. Prioritize diversification to enhance long-term performance.

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