Highly Speculative Portfolio with Strong Focus on Technology and Leveraged ETFs Needs Diversification and Risk Management

Report created on Nov 25, 2024

Risk profile Info

7/7
Speculative
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio is made up of four ETFs, each holding a 25% stake. Notably, the portfolio is heavily weighted towards leveraged ETFs, which can amplify both gains and losses. This composition indicates a speculative approach, aiming for high returns. However, the lack of diversity in asset types, primarily stocks with a small cash portion, could expose the portfolio to significant volatility. To balance this, consider introducing more stable, less volatile assets like bonds or other fixed-income securities to help cushion against market downturns.

Growth Info

Historically, the portfolio has shown an impressive compound annual growth rate of 43.47%, indicating strong past performance. However, this comes with a max drawdown of -80.47%, highlighting the extreme volatility and risk involved. The portfolio's returns are concentrated, with just 32 days accounting for 90% of the gains. This suggests that while the potential for high returns exists, the portfolio is also susceptible to significant downturns. To mitigate this risk, consider incorporating more stable investments that can provide a safety net during volatile periods.

Projection Info

Using a Monte-Carlo simulation with 1,000 iterations, the portfolio's projected outcomes vary widely due to its speculative nature. While the median outcome suggests a 2,731.23% return, the 5th percentile indicates a potential loss of -45.66%. The simulation highlights the unpredictability inherent in high-risk portfolios. To manage this risk, it may be wise to rebalance the portfolio, reducing reliance on leveraged ETFs and incorporating more diverse assets to stabilize potential outcomes and reduce the likelihood of significant losses.

Asset classes Info

  • Stocks
    89%
  • Cash
    6%
  • Other
    5%

The portfolio predominantly consists of stocks, accounting for 89.03% of the total allocation, with minor allocations to cash and other assets. This heavy reliance on equities, particularly through leveraged ETFs, contributes to the high-risk profile. Diversifying into other asset classes like bonds or commodities could help mitigate risk and provide a more balanced approach. By broadening the asset class exposure, the portfolio could achieve a more stable performance, reducing vulnerability to market fluctuations.

Sectors Info

  • Technology
    61%
  • Financials
    8%
  • Health Care
    6%
  • Consumer Discretionary
    5%
  • Industrials
    5%
  • Consumer Staples
    5%
  • Energy
    4%
  • Telecommunications
    3%
  • Basic Materials
    1%
  • Utilities
    1%
  • Real Estate
    1%

Technology dominates the sector allocation, making up 60.93% of the portfolio, followed by financial services and healthcare. This concentration in technology reflects a high-growth strategy but also increases susceptibility to sector-specific risks. To enhance diversification, consider spreading investments across a broader range of sectors. This could help cushion the portfolio against downturns in any single industry and provide more consistent returns over time.

Regions Info

  • North America
    96%
  • Europe Developed
    2%
  • Asia Developed
    1%

The portfolio's geographic allocation is heavily skewed towards North America, with 96.11% of assets based there. This lack of geographic diversification could expose the portfolio to regional economic downturns. Expanding investments into other regions, such as Europe or Asia, could provide a hedge against localized market risks and capture growth opportunities in different parts of the world. A more balanced geographic distribution could enhance the portfolio's resilience.

Redundant positions Info

  • Direxion Daily Technology Bull 3X Shares
    Direxion Daily S&P500® Bull 3X Shares
    Schwab U.S. Dividend Equity ETF
    High correlation

The portfolio exhibits high correlation among its assets, particularly between the Direxion leveraged ETFs and the Schwab Dividend ETF. This correlation reduces the diversification benefits, as these assets tend to move in tandem. To improve diversification, consider replacing some of the highly correlated ETFs with uncorrelated or negatively correlated assets. This could help stabilize the portfolio's performance and reduce the impact of market volatility on overall returns.

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, it's crucial to address the high correlation among assets, as it limits diversification benefits. Consider replacing some of the overlapping ETFs with more varied investments to achieve better diversification. To move towards a riskier portfolio, increase allocation to high-growth sectors or leveraged products. For a more conservative approach, shift focus to stable, income-generating assets like bonds. The efficient frontier can guide these adjustments, helping balance risk and return according to your goals.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.40%
  • Direxion Daily Semiconductor Bull 3X Shares 1.10%
  • Direxion Daily S&P500® Bull 3X Shares 0.70%
  • Direxion Daily Technology Bull 3X Shares 0.30%
  • Weighted yield (per year) 1.38%

The portfolio's dividend yield stands at 1.38%, with the Schwab U.S. Dividend Equity ETF contributing the most at 3.4%. While dividends provide a steady income stream, the overall yield is relatively low due to the focus on growth-oriented leveraged ETFs. To increase dividend income, consider reallocating a portion of the portfolio to higher-yielding investments. This could offer more consistent cash flow, balancing the growth potential of the leveraged ETFs with stable income.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Direxion Daily Semiconductor Bull 3X Shares 0.76%
  • Direxion Daily S&P500® Bull 3X Shares 0.91%
  • Direxion Daily Technology Bull 3X Shares 0.94%
  • Weighted costs total (per year) 0.67%

The total expense ratio of the portfolio is 0.67%, with the leveraged ETFs having higher costs compared to the Schwab Dividend ETF. While these costs are not excessively high, they can erode returns over time, especially in a portfolio with high turnover. To optimize returns, consider reducing exposure to high-cost ETFs or replacing them with lower-cost alternatives. Keeping investment costs low can significantly impact the portfolio's long-term performance, enhancing net returns for the investor.

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