Portfolio Shows Strong Growth Potential with High Risk and Diversification with Focus on Technology and North America

Report created on Dec 3, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

The portfolio is composed predominantly of ETFs, with a small allocation to a single common stock. It has a growth profile with a risk score of 5 out of 7, indicating a higher-risk investment strategy. The diversification score is 4 out of 5, suggesting a well-diversified portfolio. The allocation is heavily skewed towards stocks, with nearly 100% in equities and a negligible amount in cash. This composition is suitable for investors seeking growth and willing to accept higher volatility, but it may lack the stability of more conservative portfolios.

Growth Info

Historically, the portfolio has delivered a commendable CAGR of 13.49%, showcasing its potential for strong returns. However, it also experienced a maximum drawdown of -24.56%, indicating significant volatility. The concentration of returns in just 12 days highlights the importance of timing in this portfolio's performance. This historical performance suggests that while the portfolio can achieve high returns, it also carries substantial risk. Investors should be prepared for periods of volatility and consider whether they are comfortable with this level of risk in pursuit of higher returns.

Projection Info

Using a Monte Carlo simulation with 1,000 simulations, the portfolio's future performance was assessed. A hypothetical initial investment showed a wide range of outcomes, with a 5th percentile return of -7.18% and a 67th percentile return of 2,363.38%. The median return was 1,045.09%, indicating a strong potential for growth. However, the simulation also underscores the uncertainty and risk associated with the portfolio. Investors should be aware that while the potential for high returns exists, there is also a chance of negative outcomes, emphasizing the need for a long-term investment horizon.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly invested in stocks, with a minimal allocation to cash. This heavy reliance on equities aligns with a growth-oriented investment strategy but also increases exposure to market volatility. While stocks offer the potential for higher returns, they also carry greater risk, especially in market downturns. Investors may want to consider diversifying into other asset classes, such as bonds or real estate, to reduce risk and provide a buffer during volatile market conditions. A more balanced allocation could enhance stability without significantly sacrificing growth potential.

Sectors Info

  • Technology
    35%
  • Consumer Discretionary
    11%
  • Health Care
    9%
  • Telecommunications
    9%
  • Energy
    9%
  • Consumer Staples
    7%
  • Industrials
    7%
  • Utilities
    6%
  • Financials
    5%
  • Basic Materials
    2%

The sector allocation is heavily weighted towards technology, which makes up over 35% of the portfolio. This concentration can lead to increased volatility, as the tech sector is known for its rapid growth but also its susceptibility to market fluctuations. While technology has been a strong performer, it's important to ensure that the portfolio is not overly reliant on a single sector. Diversifying across other sectors, such as healthcare or consumer goods, could help mitigate risk and provide more consistent returns, especially during periods when technology stocks underperform.

Regions Info

  • North America
    84%
  • Europe Developed
    9%
  • Asia Developed
    2%
  • Japan
    2%
  • Asia Emerging
    1%
  • Australasia
    1%

Geographically, the portfolio is predominantly focused on North America, with over 84% of assets allocated to this region. While this concentration can benefit from the strong performance of U.S. markets, it also exposes the portfolio to regional risks. The remaining assets are spread across Europe, Asia, and other regions, providing some international diversification. However, investors may want to consider increasing exposure to emerging markets or other regions to further diversify and capture growth opportunities outside North America. A more balanced geographic allocation could reduce risk and enhance long-term returns.

Redundant positions Info

  • Invesco QQQ Trust
    Invesco NASDAQ 100 ETF
    High correlation

The portfolio contains highly correlated assets, particularly between the Invesco QQQ Trust and the Invesco NASDAQ 100 ETF. This overlap reduces the diversification benefits and can lead to increased volatility. While these ETFs have performed well historically, relying on similar assets can amplify risk during market downturns. Investors should consider reducing positions in correlated assets and seeking alternatives that provide true diversification. By minimizing overlap, the portfolio can achieve a more balanced risk-return profile and better withstand market fluctuations, ultimately enhancing overall performance.

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 optimization chart suggests that before optimizing, it's important to address overlapping assets that don't provide diversification benefits. By removing highly correlated assets, the portfolio can become more efficient, potentially achieving higher returns at the same risk level. Moving along the efficient frontier allows for adjustments in risk tolerance, enabling the investor to either increase returns with higher risk or seek more conservative options for stability. This approach ensures that the portfolio remains aligned with the investor's risk appetite and financial goals, optimizing performance over time.

Dividends Info

  • Schwab Fundamental U.S. Small Company Index ETF 1.30%
  • Invesco QQQ Trust 0.60%
  • Invesco NASDAQ 100 ETF 0.60%
  • Invesco S&P 500® Equal Weight Utilities ETF 2.30%
  • Schwab U.S. Dividend Equity ETF 3.30%
  • Wahed Dow Jones Islamic World ETF 1.10%
  • Energy Select Sector SPDR® Fund 3.20%
  • Weighted yield (per year) 1.51%

The portfolio's overall dividend yield is 1.51%, which is relatively modest. The Schwab U.S. Dividend Equity ETF and the Energy Select Sector SPDR® Fund contribute the most to this yield, with 3.3% and 3.2% respectively. While dividends can provide a steady income stream, the current yield may not be sufficient for investors seeking significant income. To enhance dividend income, investors could consider reallocating to higher-yielding assets or funds. However, it's important to balance the pursuit of income with the portfolio's growth objectives, ensuring that any changes align with the investor's overall strategy.

Ongoing product costs Info

  • Schwab Fundamental U.S. Small Company Index ETF 0.25%
  • Invesco QQQ Trust 0.20%
  • Invesco NASDAQ 100 ETF 0.15%
  • Invesco S&P 500® Equal Weight Utilities ETF 0.40%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Wahed Dow Jones Islamic World ETF 0.65%
  • Energy Select Sector SPDR® Fund 0.09%
  • Weighted costs total (per year) 0.23%

The portfolio's total expense ratio is 0.23%, which is competitive and suggests efficient cost management. The Schwab U.S. Dividend Equity ETF and the Energy Select Sector SPDR® Fund have relatively low expense ratios, contributing to the portfolio's cost-effectiveness. However, the Wahed Dow Jones Islamic World ETF has a higher expense ratio of 0.65%, which could be a drag on returns. Investors should regularly review and compare expense ratios to ensure they are not overpaying for fund management. Keeping costs low is crucial for maximizing net returns over the long term.

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