High Growth Potential but Low Diversification in a Tech-Heavy Portfolio

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 focused on high growth. They are likely to have a long investment horizon and a high tolerance for risk and volatility. Their primary goal is capital appreciation, and they are comfortable with significant fluctuations in portfolio value. This investor is willing to accept the potential for substantial losses in exchange for the possibility of high returns. They should be prepared for active monitoring and adjustments to manage risk effectively.

Positions

  • Vanguard Information Technology Index Fund ETF Shares
    VGT - US92204A7028
    40.00%
  • Vanguard S&P 500 ETF
    VOO - US9229083632
    40.00%
  • Schwab U.S. Dividend Equity ETF
    SCHD - US8085247976
    20.00%

The portfolio is heavily concentrated in three ETFs: Vanguard Information Technology Index Fund ETF Shares (40%), Vanguard S&P 500 ETF (40%), and Schwab U.S. Dividend Equity ETF (20%). This composition indicates a strong focus on growth, particularly in the technology sector. Such a concentrated portfolio can lead to higher returns but also exposes the investor to significant sector-specific risks. Diversifying into other sectors or asset classes could help mitigate these risks and provide a more balanced investment approach.

Growth

Historically, the portfolio has performed impressively with a compound annual growth rate (CAGR) of 16.28%. However, it has also experienced significant volatility, with a maximum drawdown of -32.7%. This means that while the portfolio has the potential for high returns, it can also suffer substantial losses during market downturns. Investors should be prepared for this level of volatility and ensure it aligns with their risk tolerance and investment goals.

Projection

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was projected. The median outcome (50th percentile) shows a potential return of 652.01%, indicating strong growth potential. However, the 5th percentile outcome is 116.38%, highlighting the risk of lower-than-expected returns. Monte Carlo simulations provide a range of possible outcomes, helping investors understand the potential variability in future performance. Diversifying the portfolio could help reduce this variability and provide more stable returns.

Asset classes

  • Stocks
    100%
  • Cash
    0%

The portfolio is predominantly composed of stocks, accounting for 99.76% of the total assets, with a negligible amount in cash (0.24%). This heavy allocation to equities suggests a high-risk, high-reward investment strategy. While stocks generally offer higher returns over the long term, they also come with increased volatility. Adding bonds or other fixed-income securities could help balance the portfolio and reduce overall risk.

Sectors

  • Technology
    54%
  • Financials
    9%
  • Health Care
    8%
  • Consumer Discretionary
    6%
  • Industrials
    6%
  • Consumer Staples
    5%
  • Telecommunications
    5%
  • Energy
    4%
  • Basic Materials
    1%
  • Real Estate
    1%
  • Utilities
    1%

The sector allocation is heavily skewed towards technology, making up 53.72% of the portfolio. Other sectors like financial services (8.60%), healthcare (8.01%), and consumer cyclicals (6.30%) have much smaller allocations. This concentration in technology can lead to significant gains when the sector performs well but can also result in substantial losses during downturns. Diversifying into underrepresented sectors could help mitigate sector-specific risks and improve overall portfolio stability.

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 99.28% of the assets allocated there. Minimal exposure to other regions like Europe Developed (0.53%) and Asia Developed (0.11%) suggests a lack of geographic diversification. This concentration can expose the portfolio to region-specific risks, such as economic downturns or political instability. Diversifying into international markets could provide a hedge against these risks and offer opportunities for growth in other regions.

Dividends

  • Schwab U.S. Dividend Equity ETF 3.40%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.30%
  • Weighted yield (per year) 1.44%

The Schwab U.S. Dividend Equity ETF, which constitutes 20% of the portfolio, provides a source of dividend income. Dividend-paying stocks can offer a steady income stream and potential for capital appreciation. However, the overall portfolio's dividend yield is relatively low due to the heavy allocation to growth-oriented ETFs. Increasing the allocation to dividend-focused investments could enhance income generation and provide a buffer during market volatility.

Ongoing product costs

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.06%

The portfolio has low costs, with a total expense ratio (TER) of 0.06%. Low costs are beneficial as they help maximize net returns over time. The expense ratios for the individual ETFs are also quite low, ranging from 0.03% to 0.10%. Keeping investment costs low is crucial for long-term growth, as high fees can erode returns. Maintaining this focus on low-cost investments will continue to benefit the portfolio's overall performance.

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