High-Risk Growth Portfolio with Strong Tech Focus and Single-Focused Diversification Strategy

Report created on Dec 4, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

1/5
Single-Focused
Less diversification More diversification

Positions

The portfolio is heavily weighted towards ETFs, with a significant allocation to technology and growth-focused funds. This composition suggests a strong belief in the long-term potential of tech and growth sectors. However, there's a notable concentration risk due to the single-focused diversification strategy. This means that while the portfolio might perform well when tech and growth sectors do well, it could also face significant downturns if these sectors underperform. Diversifying across more sectors and asset classes could help mitigate this risk.

Growth Info

Historically, the portfolio has shown impressive growth with a CAGR of 29.5%. This indicates strong returns, likely driven by the high allocation to growth and tech sectors. However, the max drawdown of -81.74% highlights the portfolio's vulnerability to market downturns. Such volatility can be concerning, especially for those nearing retirement or needing liquidity. Balancing high returns with acceptable risk is crucial, and considering more stable assets could reduce potential drawdowns while maintaining growth potential.

Projection Info

Using a Monte-Carlo simulation with 1,000 iterations, the portfolio shows a wide range of potential future outcomes. The 5th percentile indicates a modest return of 15.88%, while the 50th and 67th percentiles suggest substantial growth of 1,394.06% and 2,645.42%, respectively. This highlights the portfolio's potential for high returns but also underscores the inherent risk. Monte-Carlo simulations help investors understand the range of possible outcomes, emphasizing the importance of aligning investments with risk tolerance and financial goals.

Asset classes Info

  • Stocks
    82%
  • Other
    14%
  • Bonds
    4%

The portfolio is predominantly composed of stocks, making up 81.76% of the total allocation. This heavy stock allocation aligns with a growth-oriented strategy but also introduces significant volatility. Bonds and other asset classes are minimally represented, which limits the portfolio's ability to cushion against market downturns. Introducing more bonds or alternative investments could provide stability and reduce overall portfolio risk, creating a more balanced approach that aligns with varying market conditions.

Sectors Info

  • Technology
    41%
  • Consumer Discretionary
    7%
  • Financials
    7%
  • Health Care
    6%
  • Telecommunications
    6%
  • Industrials
    5%
  • Consumer Staples
    4%
  • Energy
    3%
  • Basic Materials
    1%
  • Real Estate
    1%
  • Utilities
    1%

The portfolio's sector allocation is heavily skewed towards technology, which constitutes over 41% of the total holdings. While this sector has shown strong growth historically, such a concentration poses a risk if the tech sector faces a downturn. Other sectors like consumer cyclicals and financial services have minor allocations, offering limited diversification. To mitigate sector-specific risks, spreading investments across more sectors could enhance the portfolio's resilience and provide better protection against sector-specific downturns.

Regions Info

  • North America
    82%

Geographically, the portfolio is overwhelmingly focused on North America, with 81.53% of the assets allocated there. This concentration increases exposure to the economic conditions and market trends of a single region. While North America has a robust market, diversifying into other regions could reduce geopolitical and economic risks. Including more international exposure would not only provide diversification benefits but also open opportunities in emerging markets and developed regions outside of North America.

Redundant positions Info

  • Vanguard Information Technology Index Fund ETF Shares
    Vanguard Growth Index Fund ETF Shares
    Vanguard Total Stock Market Index Fund ETF Shares
    Vanguard Mega Cap Growth Index Fund ETF Shares
    Vanguard S&P 500 ETF
    Vanguard S&P 500 Growth Index Fund ETF Shares
    High correlation

The portfolio contains several highly correlated assets, particularly within the technology and growth sectors. This correlation means that these assets tend to move in the same direction, reducing diversification benefits. When assets are highly correlated, the portfolio's risk isn't spread out as effectively, which can lead to increased volatility. Reducing the number of overlapping assets and incorporating less correlated investments can enhance diversification, leading to a more balanced and resilient portfolio.

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 considering portfolio optimization, addressing the high correlation among assets is crucial. By reducing overlapping investments, the portfolio can achieve better diversification. Moving along the efficient frontier can help strike a balance between risk and return. For a riskier portfolio, increasing exposure to high-growth sectors may be considered. Conversely, for a more conservative approach, incorporating more bonds and dividend-paying stocks can provide stability. Optimizing the portfolio involves aligning it with personal risk tolerance and financial goals, ensuring a tailored investment strategy.

Dividends Info

  • Vanguard Total Bond Market Index Fund ETF Shares 3.30%
  • Vanguard Mega Cap Growth Index Fund ETF Shares 0.40%
  • Schwab U.S. Dividend Equity ETF 3.30%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard S&P 500 Growth Index Fund ETF Shares 0.60%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Weighted yield (per year) 1.15%

The portfolio's overall dividend yield is relatively low at 1.15%, reflecting its growth-focused strategy. While dividends provide a steady income stream, the current yield suggests that the portfolio is more geared towards capital appreciation rather than income generation. For investors seeking regular income, increasing the allocation to dividend-paying stocks or funds may be beneficial. Balancing growth with income-generating assets can provide a more well-rounded approach, catering to both long-term growth and short-term income needs.

Ongoing product costs Info

  • Vanguard Total Bond Market Index Fund ETF Shares 0.03%
  • Grayscale Bitcoin Trust (BTC) 1.50%
  • Vanguard Mega Cap Growth Index Fund ETF Shares 0.07%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard S&P 500 Growth Index Fund ETF Shares 0.10%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Weighted costs total (per year) 0.25%

With a total expense ratio of 0.25%, the portfolio's costs are relatively low, which is advantageous for long-term growth. Keeping costs low is crucial as high fees can erode returns over time. The Grayscale Bitcoin Trust has a notably higher cost at 1.5%, which could impact overall returns. While the low-cost structure is commendable, monitoring and managing expenses continually can help maximize net returns. Regularly reviewing and optimizing the cost structure ensures that the portfolio remains efficient and cost-effective.

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