Growth-Focused Portfolio with High Risk and Low Diversification Needs Better Asset Balance

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 a growth-oriented investor with a high risk tolerance and a long-term investment horizon. Such an investor is typically comfortable with market volatility and seeks capital appreciation over income. They are likely to prioritize potential high returns over stability and are willing to endure short-term fluctuations for the possibility of substantial long-term gains. This type of investor may also be interested in sectors and regions with strong growth prospects, even if they come with higher risk.

Positions

  • Invesco QQQ Trust
    QQQ - US46090E1038
    36.44%
  • Vanguard Total Stock Market Index Fund ETF Shares
    VTI - US9229087690
    19.01%
  • Vanguard S&P 500 ETF
    VOO - US9229083632
    14.16%
  • Invesco Aerospace & Defense ETF
    PPA - US46137V1008
    11.53%
  • Extra Space Storage Inc
    EXR - US30225T1025
    9.90%
  • Textron Inc
    TXT - US8832031012
    3.26%
  • Palantir Technologies Inc
    PLTR - US69608A1088
    2.97%
  • Invesco NASDAQ 100 ETF
    QQQM - US46138G6492
    2.72%

The current portfolio is heavily invested in ETFs, with a significant concentration in technology and industrial sectors. There's a notable lack of diversification, as the portfolio is primarily composed of stocks, with a negligible amount in cash. This composition suggests a focus on growth, but it also increases exposure to market volatility. A balanced portfolio typically includes a mix of asset classes to mitigate risk. To improve diversification and reduce risk, consider incorporating other asset classes like bonds or commodities, which can provide stability during market downturns.

Growth Info

Historically, the portfolio has shown strong performance with a compound annual growth rate (CAGR) of 18.71%. However, it also experienced a significant maximum drawdown of -28.2%, indicating vulnerability during market corrections. The high returns are appealing, but the volatility may not suit all investors. Understanding the risk-return trade-off is crucial for aligning with investment goals. To better manage risk, consider strategies that can cushion against large drawdowns, such as diversifying into less volatile assets or sectors.

Projection Info

Using a Monte-Carlo simulation, which models potential future returns based on historical data, the portfolio shows promising potential with an annualized return of 29.29%. However, the risk remains high, with a wide range of possible outcomes. This suggests that while the portfolio could yield significant returns, it could also experience substantial volatility. To align with long-term growth goals while managing risk, consider rebalancing the portfolio to include more stable investments that can help smooth out returns over time.

Asset classes Info

  • Stocks
    100%
  • Cash
    0%

The portfolio is overwhelmingly concentrated in stocks, making up 99.89% of the total allocation. This heavy reliance on a single asset class increases exposure to market fluctuations and economic cycles. Diversifying across different asset classes, such as bonds, real estate, or commodities, can help reduce risk and provide more consistent returns. By incorporating a broader range of asset classes, the portfolio can achieve a more balanced risk profile and potentially enhance overall performance.

Sectors Info

  • Technology
    35%
  • Industrials
    18%
  • Real Estate
    11%
  • Telecommunications
    9%
  • Consumer Discretionary
    9%
  • Health Care
    6%
  • Financials
    5%
  • Consumer Staples
    4%
  • Energy
    1%
  • Utilities
    1%
  • Basic Materials
    1%

Sector allocation reveals a strong bias towards technology and industrials, with these two sectors comprising over 50% of the portfolio. While these sectors have historically driven growth, they can also be highly volatile. A more diversified sector allocation can protect against sector-specific downturns and provide a more stable return profile. Consider spreading investments across a broader range of sectors, such as healthcare, consumer goods, or utilities, to achieve a more balanced exposure.

Regions Info

  • North America
    99%
  • Europe Developed
    1%
  • Latin America
    0%
  • Asia Emerging
    0%
  • Africa/Middle East
    0%
  • Asia Developed
    0%

Geographically, the portfolio is heavily skewed towards North American assets, accounting for 98.7% of the allocation. This lack of geographic diversification exposes the portfolio to regional economic risks. Diversifying across different regions can provide a hedge against local economic downturns and take advantage of growth opportunities in other markets. Expanding geographic exposure to include emerging markets or developed regions outside North America can enhance diversification and potentially boost returns.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Invesco QQQ Trust
    High correlation
  • Vanguard Total Stock Market Index Fund ETF Shares
    Vanguard S&P 500 ETF
    High correlation

The portfolio contains highly correlated assets, particularly among ETFs like the Invesco NASDAQ 100 ETF and Invesco QQQ Trust. High correlation means these assets tend to move in the same direction, which limits diversification benefits. Reducing correlation can lower portfolio risk and improve returns. Consider replacing some of the overlapping ETFs with those that have lower correlation to the rest of the portfolio, thereby enhancing diversification and optimizing risk-adjusted returns.

Dividends Info

  • Extra Space Storage Inc 3.80%
  • Invesco Aerospace & Defense ETF 0.50%
  • Invesco QQQ Trust 0.60%
  • Invesco NASDAQ 100 ETF 0.60%
  • Textron Inc 0.10%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Weighted yield (per year) 1.07%

The portfolio's dividend yield stands at 1.07%, which is relatively modest. While growth-focused portfolios often prioritize capital appreciation over income, dividends can provide a steady income stream and enhance total returns. Incorporating dividend-paying stocks or funds can improve the portfolio's income-generating potential. Consider balancing growth and income by including assets with higher dividend yields, which can offer stability and cash flow, especially during periods of market volatility.

Ongoing product costs Info

  • Invesco Aerospace & Defense ETF 0.58%
  • Invesco QQQ Trust 0.20%
  • Invesco NASDAQ 100 ETF 0.15%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.15%

The total expense ratio (TER) of the portfolio is 0.15%, which is relatively low, indicating cost-efficient management. Keeping investment costs low is crucial for maximizing net returns over time. However, some individual ETFs within the portfolio have higher expense ratios, such as the Invesco Aerospace & Defense ETF at 0.58%. To further reduce costs, consider replacing higher-cost funds with more cost-effective alternatives that offer similar exposure. This can enhance overall returns without compromising on diversification.

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.

The portfolio can be optimized by addressing the high correlation and concentration in specific sectors. By removing overlapping assets and introducing more diverse investments, the portfolio can achieve a better risk-return balance. Moving along the efficient frontier involves adjusting the asset mix to either increase expected returns for the same risk level or reduce risk while maintaining returns. This process can lead to a more efficient portfolio that aligns with the investor's risk tolerance and financial goals.

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