Growth-Oriented Portfolio with High Risk and Low Diversification Focused on Technology and North America

Report created on Jul 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 consists of four major positions, all ETFs with a strong focus on U.S. equities, particularly in the technology sector. With Vanguard Total Stock Market Index Fund ETF Shares making up the largest portion, the portfolio leans heavily on broad market exposure. However, the concentrated positions in Invesco NASDAQ 100 ETF and VanEck Semiconductor ETF indicate a significant technological bias. The composition reflects a growth-oriented strategy but lacks diversification across asset classes or sectors, making it vulnerable to sector-specific downturns. To enhance diversification, consider incorporating more varied asset types and sectors.

Growth Info

Historically, the portfolio has shown impressive growth with a CAGR of 17.73%, indicating strong past performance, particularly in a bull market. However, the max drawdown of -32.21% highlights the potential volatility and risk involved. The concentration in technology and U.S. equities has driven returns but also exposes the portfolio to significant market fluctuations. While past performance is no guarantee of future results, maintaining a balanced approach could help manage risk and sustain returns over time. It's crucial to consider the portfolio's ability to withstand market downturns and adjust accordingly.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was assessed. This statistical method helps evaluate potential outcomes by simulating random market conditions. The analysis shows a wide range of possible returns, with a median return of 1,044.87% and a 5th percentile return of 171.27%. The high annualized return of 22.02% across simulations suggests potential for significant growth, but the variance indicates substantial risk. To mitigate this, consider strategies to balance risk and reward, such as diversifying holdings or adjusting the risk profile to align with long-term financial goals.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly invested in stocks, with a negligible allocation to cash, reflecting a high-risk, high-reward strategy. This concentration in equities can lead to substantial returns but also increases exposure to market volatility. A more balanced asset allocation, incorporating bonds or alternative investments, could provide stability and reduce overall risk. By diversifying across asset classes, the portfolio can better withstand economic fluctuations and provide more consistent returns. It's important to assess the risk tolerance and investment goals to determine the appropriate mix of asset classes.

Sectors Info

  • Technology
    53%
  • Telecommunications
    9%
  • Consumer Discretionary
    9%
  • Health Care
    7%
  • Financials
    6%
  • Industrials
    5%
  • Consumer Staples
    4%
  • Energy
    2%
  • Utilities
    2%
  • Basic Materials
    1%
  • Real Estate
    1%

The sector allocation is heavily skewed towards technology, making up over half of the portfolio. While this has driven past performance, it also poses a risk if the tech sector faces a downturn. Other sectors like Communication Services and Consumer Cyclicals are represented but to a lesser extent. A more balanced sector allocation could enhance diversification and reduce sector-specific risks. Consider exploring opportunities in underrepresented sectors to achieve a more diversified portfolio. This approach can help mitigate the impact of sector volatility and contribute to more stable long-term growth.

Regions Info

  • North America
    97%
  • Asia Developed
    1%
  • Europe Developed
    1%

Geographically, the portfolio is predominantly focused on North America, with minimal exposure to other regions. This concentration increases vulnerability to regional economic and political events. Expanding geographic diversification could help mitigate these risks and capture growth opportunities in emerging and developed markets outside North America. By investing in international equities or funds, the portfolio can benefit from global economic trends and reduce reliance on the U.S. market. Assessing the potential of various regions and incorporating them into the portfolio can enhance its resilience and growth potential.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Vanguard Information Technology Index Fund ETF Shares
    Vanguard Total Stock Market Index Fund ETF Shares
    VanEck Semiconductor ETF
    High correlation

The assets within the portfolio exhibit high correlation, particularly among the technology-focused ETFs. This lack of diversification means that the portfolio's performance is heavily reliant on a single sector's success. Reducing correlation by incorporating assets with different risk-return profiles can improve diversification and reduce overall risk. Consider adding investments that have historically shown low correlation with the current holdings. This strategy can help balance the portfolio, providing more consistent returns and reducing the impact of market volatility on 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 could benefit from optimization by addressing the high correlation among current holdings. By reducing overlapping assets, diversification can be improved, potentially leading to better risk-adjusted returns. Moving along the efficient frontier, investors can achieve a more conservative or riskier portfolio depending on their preferences. For those looking to maintain the current risk level, enhancing diversification is key. By focusing on underrepresented sectors or regions, the portfolio can achieve a more balanced risk-return profile, providing a solid foundation for long-term growth and stability.

Dividends Info

  • Invesco NASDAQ 100 ETF 0.60%
  • VanEck Semiconductor ETF 0.40%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 0.89%

The portfolio's dividend yield is relatively low at 0.89%, reflecting its growth-oriented strategy. While dividends can provide a steady income stream, the focus here is on capital appreciation. However, incorporating dividend-paying stocks or funds could offer additional income and reduce reliance on market gains alone. This strategy can provide stability during market downturns and contribute to total returns. Evaluating the role of dividends in the portfolio and considering a mix of growth and income investments can enhance overall performance and meet financial objectives.

Ongoing product costs Info

  • Invesco NASDAQ 100 ETF 0.15%
  • VanEck Semiconductor ETF 0.35%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.11%

The portfolio's total expense ratio is low at 0.11%, which is beneficial for long-term growth as lower costs mean more of the returns are retained. This cost efficiency is a positive aspect and aligns with best practices for investment management. However, it's essential to remain vigilant about fees and consider the cost implications of any potential adjustments to the portfolio. Keeping costs low should remain a priority, as it directly impacts net returns. Regularly reviewing the expense ratios of current and prospective investments can help maintain cost-effectiveness.

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