Portfolio with High Risk and Low Diversification Dominated by U.S. Stock ETFs in Technology Sector

Report created on Dec 4, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

The portfolio is composed entirely of ETFs, each holding 20% of the total allocation. This uniform distribution suggests a straightforward approach, but it lacks diversification, both in terms of asset classes and geographic reach. The heavy focus on U.S. stocks, especially in the technology sector, indicates a growth-oriented strategy. However, this composition might expose the portfolio to significant sector-specific and regional risks. Consider diversifying into other asset classes or regions to balance the risk.

Growth Info

Historically, the portfolio has demonstrated strong performance, with a CAGR of 16.15%. This suggests that the chosen ETFs have generally performed well over time, contributing to substantial growth. However, the max drawdown of -32.86% highlights the potential volatility and risk associated with such a concentrated portfolio. Understanding these risks is crucial for managing expectations and preparing for potential market downturns. It might be wise to consider strategies that can mitigate these drawdowns, such as diversification or hedging.

Projection Info

Using a Monte Carlo simulation, the portfolio's future performance was projected with a hypothetical initial investment. The simulations suggest a wide range of outcomes, with a 5th percentile return of 133.63% and a 67th percentile return of 967.26%. This indicates a potentially high reward, but also highlights the uncertainty and risk involved. Monte Carlo simulations are useful for understanding the range of potential outcomes and preparing for different scenarios. It might be prudent to reassess the portfolio's risk tolerance and make adjustments accordingly.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with a negligible cash allocation. This asset class concentration aligns with a high-risk, high-reward strategy, focusing on capital growth rather than income generation or capital preservation. While this can be beneficial during bull markets, it can also lead to increased volatility during downturns. To reduce risk, consider incorporating other asset classes like bonds or real estate, which can provide stability and income.

Sectors Info

  • Technology
    45%
  • Financials
    11%
  • Health Care
    9%
  • Consumer Discretionary
    9%
  • Telecommunications
    7%
  • Industrials
    6%
  • Consumer Staples
    5%
  • Energy
    4%
  • Basic Materials
    1%
  • Utilities
    1%
  • Real Estate
    1%

The sector allocation is heavily skewed towards technology, which constitutes nearly 45% of the portfolio. Other sectors like financial services and healthcare have moderate representation, but many sectors are underrepresented or absent. This concentration in technology can lead to significant volatility, as this sector tends to be more cyclical. Balancing the sector allocation by including more defensive sectors can help stabilize returns and reduce overall portfolio risk.

Regions Info

  • North America
    99%

Geographically, the portfolio is overwhelmingly focused on North America, with over 99% allocation. This lack of geographic diversification exposes the portfolio to regional economic and political risks. While the U.S. market has been strong historically, diversifying into other regions could capture growth opportunities elsewhere and reduce dependency on a single market. Including international stocks or funds can help mitigate country-specific risks and enhance diversification.

Redundant positions Info

  • Vanguard S&P 500 ETF
    Schwab U.S. Large-Cap Growth ETF
    Vanguard Information Technology Index Fund ETF Shares
    SPDR® Portfolio S&P 500 ETF
    High correlation

The portfolio shows high correlation among its assets, especially between the Vanguard S&P 500 ETF, Schwab U.S. Large-Cap Growth ETF, Vanguard Information Technology Index Fund ETF Shares, and SPDR® Portfolio S&P 500 ETF. This means these assets tend to move in the same direction, offering little diversification benefit. High correlation can increase portfolio risk during market downturns. Consider diversifying with assets that have lower correlations to reduce risk and enhance stability.

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.

Before optimizing the portfolio, focus on reducing asset overlap due to high correlations. This will enhance diversification and potentially reduce risk. Moving along the efficient frontier can help balance risk and return. To achieve a riskier portfolio, consider increasing exposure to high-growth sectors. For a more conservative approach, incorporate assets with lower volatility and more stable returns. This strategic adjustment can align the portfolio with your risk tolerance and financial goals.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.30%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • SPDR® Portfolio S&P 500 ETF 1.20%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.34%

The portfolio's dividend yield stands at 1.34%, with the Schwab U.S. Dividend Equity ETF providing the highest yield at 3.3%. While dividends can offer a steady income stream, the overall yield is relatively low, reflecting the growth-oriented nature of the portfolio. For investors seeking income, it might be worth exploring higher-yielding assets or funds. Balancing growth with income can provide a more stable return profile, especially during market volatility.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • SPDR® Portfolio S&P 500 ETF 0.02%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.05%

The portfolio's total expense ratio is 0.05%, which is quite low and indicates cost-efficient management. Low costs are beneficial as they enhance net returns over time. The ETFs selected have competitive expense ratios, making them attractive for cost-conscious investors. Keeping investment costs low is crucial for long-term growth, as fees can significantly erode returns. Continue to monitor and compare expense ratios to ensure the portfolio remains cost-effective.

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