High Risk Low Diversity Portfolio with Heavy Weight in Technology Sector and Strong Historic Performance

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 growth-oriented investors who can tolerate higher levels of risk and volatility. These investors typically have a long-term investment horizon and are focused on capital appreciation rather than income generation. They are comfortable with significant exposure to the technology sector and the U.S. market, understanding that this may lead to periods of substantial drawdowns. Such investors are likely to prioritize potential high returns over stability, accepting the possibility of fluctuating portfolio values in exchange for the chance to achieve above-average market gains.

Positions

  • Vanguard S&P 500 ETF
    VOO - US9229083632
    40.30%
  • Vanguard Information Technology Index Fund ETF Shares
    VGT - US92204A7028
    30.70%
  • Invesco NASDAQ 100 ETF
    QQQM - US46138G6492
    29.00%

The portfolio is composed of three ETFs, with a significant concentration in the Vanguard S&P 500 ETF at 40.3%, followed by the Vanguard Information Technology Index Fund ETF Shares at 30.7%, and Invesco NASDAQ 100 ETF at 29.0%. This composition indicates a strong focus on large-cap U.S. equities, particularly within the technology sector. The portfolio's low diversification score suggests a concentrated investment strategy. While this can lead to higher returns, it also exposes the portfolio to sector-specific risks. To mitigate these risks, consider diversifying across different asset classes and sectors.

Growth Info

Historically, the portfolio has performed exceptionally well with a compound annual growth rate (CAGR) of 16.96%. However, it has also experienced significant volatility, with a maximum drawdown of -30.71%. This performance profile highlights the potential for high returns but also underscores the risk of substantial losses during market downturns. It's crucial to consider whether this level of volatility aligns with your long-term investment goals and risk tolerance. To maintain a balanced approach, consider incorporating investments that provide stability during market fluctuations.

Projection Info

Using a Monte Carlo simulation, which models potential future returns based on historical data, the portfolio shows a wide range of outcomes. With 1,000 simulations, the 5th percentile projects a 112.77% return, while the median (50th) is 712.5%, and the 67th percentile is 1,102.84%. This suggests a high probability of significant returns, with 994 simulations yielding positive outcomes. However, the variability in potential outcomes also indicates the inherent risk. To manage this uncertainty, consider strategies to reduce volatility, such as diversifying into less correlated assets.

Asset classes

  • Stocks
    100%
  • Cash
    0%

The portfolio is heavily weighted in stocks, accounting for 99.83% of the allocation, with a minimal cash position of 0.17%. This asset class concentration suggests a high-risk, high-reward strategy, typically suitable for investors with a longer time horizon and higher risk tolerance. While equities offer growth potential, they also expose the portfolio to market volatility. To balance risk and return, consider allocating a portion of the portfolio to fixed-income assets, which can provide stability and income during market downturns.

Sectors

  • Technology
    59%
  • Telecommunications
    8%
  • Consumer Discretionary
    8%
  • Health Care
    6%
  • Financials
    5%
  • Industrials
    4%
  • Consumer Staples
    4%
  • Energy
    2%
  • Utilities
    1%
  • Basic Materials
    1%
  • Real Estate
    1%

The sector allocation is heavily skewed towards technology, comprising 58.58% of the portfolio. Other sectors like communication services, consumer cyclicals, and healthcare have smaller allocations. This concentration in technology can lead to outsized gains when the sector performs well but also increases vulnerability to sector-specific downturns. To enhance diversification and reduce risk, consider spreading investments across a broader range of sectors. This approach can help cushion the portfolio against sector-specific volatility and provide more stable returns over time.

Regions

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

Geographically, the portfolio is overwhelmingly concentrated in North America, with 98.77% of assets allocated there. This bias towards the U.S. market can limit exposure to growth opportunities in other regions and increase vulnerability to regional economic downturns. While the U.S. market has been a strong performer historically, diversification into international markets can provide access to different economic cycles and growth drivers. Consider gradually increasing exposure to developed and emerging markets outside North America to enhance geographic diversification.

Redundant positions

  • Invesco NASDAQ 100 ETF
    Vanguard Information Technology Index Fund ETF Shares
    Vanguard S&P 500 ETF
    High correlation

The portfolio's assets are highly correlated, particularly the Invesco NASDAQ 100 ETF, Vanguard Information Technology Index Fund ETF Shares, and Vanguard S&P 500 ETF. This correlation means that the assets tend to move in the same direction, which can amplify both gains and losses. While this can be advantageous in a rising market, it also increases the portfolio's vulnerability to downturns. To reduce correlation risk, consider adding assets with low or negative correlation to the existing holdings, which can help smooth out returns and reduce overall portfolio volatility.

Dividends

  • Invesco NASDAQ 100 ETF 0.60%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 0.84%

The portfolio's dividend yield is relatively modest at 0.84%, with the Vanguard S&P 500 ETF contributing the highest yield at 1.2%. This suggests that the portfolio is more focused on capital appreciation rather than income generation. For investors seeking regular income, this yield may not be sufficient. To enhance income potential, consider incorporating dividend-focused investments or funds with higher yield potential. This adjustment can provide a steady income stream, which can be particularly beneficial during periods of market volatility or when seeking to meet specific cash flow needs.

Ongoing product costs

  • Invesco NASDAQ 100 ETF 0.15%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.09%

The portfolio's total expense ratio (TER) is 0.09%, which is quite low and indicates cost-efficient management. The Vanguard S&P 500 ETF has the lowest individual cost at 0.03%, while the Invesco NASDAQ 100 ETF is the highest at 0.15%. Keeping investment costs low is crucial as it directly impacts net returns. This cost efficiency is a positive aspect of the portfolio management strategy. To maintain or further reduce costs, regularly review the expense ratios of existing and potential new investments, ensuring they align with the overall investment strategy and cost objectives.

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 is not currently optimized due to high asset correlation, which can limit diversification benefits. The efficient frontier concept suggests that an optimal portfolio offers the highest expected return for a given level of risk. However, the overlapping exposure in the current portfolio indicates potential inefficiencies. To move towards an optimal portfolio, consider reducing correlation by diversifying into different asset classes and sectors. This approach can help achieve a better balance between risk and return, potentially moving the portfolio closer to the efficient frontier.

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