Portfolio with Strong Growth Potential but High Correlation Among Assets and Moderate Diversification

Report created on Jul 9, 2024

Risk profile Info

5/7
Growth
← Less risk More risk →

Diversification profile Info

3/5
Moderately Diversified
← Less diversification More diversification →

Positions

The portfolio is heavily weighted towards ETFs, with the SPDR S&P 500 ETF Trust making up a significant 64%. This suggests a strong focus on broad market exposure, which can provide stability but may limit diversification benefits. The presence of individual stock, Brighthouse Financial Inc, at 7.5% introduces some specific company risk. The overall composition leans towards a growth-oriented strategy, given the selection of funds and the weighting towards equities. To improve diversification, consider including a wider range of asset classes or sectors to reduce potential volatility and enhance returns.

Growth Info

Historically, the portfolio has shown impressive performance, with a compound annual growth rate (CAGR) of 15.28%. This indicates that the portfolio has been able to capture significant market gains over time. However, the maximum drawdown of -33.69% highlights the risk associated with such a growth-focused strategy. It is crucial to understand that while past performance can be indicative, it is not a guarantee of future results. To maintain strong performance, consider rebalancing periodically to ensure alignment with your risk tolerance and investment goals.

Projection Info

Using a Monte Carlo simulation, which runs numerous hypothetical scenarios to predict future outcomes, the portfolio shows promising potential. With a median expected return of 582.96% and a 17.1% annualized return, the outlook is optimistic. However, there remains a wide range of possible outcomes, emphasizing the importance of diversification. While the projections are encouraging, it's essential to remain cautious and prepared for market fluctuations. Consider maintaining a diversified approach to manage risk and capitalize on potential growth opportunities.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with a negligible cash position. This heavy equity allocation aligns with a growth strategy but introduces higher volatility risk. While equities offer the potential for substantial returns, they also expose the portfolio to market downturns. To balance risk and reward, consider incorporating other asset classes like bonds or real estate. This can help cushion against market volatility and provide more stable returns over time, ensuring a well-rounded portfolio that aligns with long-term investment goals.

Sectors Info

  • Technology
    34%
  • Financials
    11%
  • Consumer Discretionary
    10%
  • Health Care
    9%
  • Telecommunications
    8%
  • Other
    8%
  • Industrials
    7%
  • Consumer Staples
    5%
  • Energy
    3%
  • Utilities
    2%
  • Real Estate
    2%
  • Basic Materials
    2%

The portfolio shows a strong tilt towards the technology sector, comprising over 34% of the total allocation. While this sector has been a significant driver of returns, it also introduces concentration risk. The financial services and consumer cyclicals sectors add some diversification but are relatively smaller. A more balanced sector allocation can help mitigate risks associated with sector-specific downturns. Consider diversifying into sectors with lower representation to achieve a more stable and resilient portfolio that can weather various economic cycles.

Regions Info

  • North America
    92%
  • No data
    8%
  • Europe Developed
    1%

Geographically, the portfolio is highly concentrated in North America, with over 91% exposure. This reflects a strong home bias, which can limit the benefits of global diversification. While North American markets have performed well, diversifying into international markets can provide exposure to different economic conditions and growth opportunities. Consider expanding into emerging markets or developed regions outside North America to capture a broader range of opportunities and reduce geographic risk.

Redundant positions Info

  • Vanguard Information Technology Index Fund ETF Shares
    Invesco QQQ Trust
    SPDR S&P 500 ETF Trust
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio exhibits high correlation among its assets, particularly within the ETFs. This means that the assets tend to move in the same direction, reducing the diversification benefit. High correlation can amplify portfolio volatility during market downturns. To enhance diversification, consider including assets with lower correlations to existing holdings. This can help smooth out returns and reduce overall portfolio risk, providing a more stable investment experience over the long term.

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's optimization potential lies in addressing its high asset correlation. Before making any changes, focus on reducing overlapping assets that do not contribute to diversification. By moving along the efficient frontier, one can adjust the risk-return profile, either by adding less correlated assets for a more conservative approach or by accepting higher risk for potential greater returns. This process involves balancing risk and reward, ensuring any adjustments align with personal financial goals and risk appetite.

Dividends Info

  • Brighthouse Financial Inc 6.40%
  • Invesco QQQ Trust 0.60%
  • SPDR S&P 500 ETF Trust 1.20%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 1.54%

The overall dividend yield of the portfolio stands at 1.54%, with Brighthouse Financial Inc contributing the highest yield at 6.4%. While dividends can provide a steady income stream, the focus on growth-oriented stocks means the yield is relatively modest. For investors seeking higher income, consider increasing exposure to dividend-paying stocks or funds. However, ensure this aligns with your overall investment strategy and risk tolerance. Balancing growth and income can help achieve both capital appreciation and regular cash flow.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • SPDR S&P 500 ETF Trust 0.10%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.09%

The portfolio's total expense ratio (TER) is low at 0.09%, indicating cost-efficiency. Lower costs mean more of your returns stay in your pocket, enhancing overall performance. However, it's important to regularly review and ensure that the cost structure remains competitive. While costs are currently low, keeping an eye on any changes in fund fees or management expenses can help maintain a cost-effective portfolio. Consider periodically comparing with other similar funds to ensure you are getting value for your investment.

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