A tech-heavy growth portfolio with low diversification and high historical returns

Report created on Dec 29, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

This portfolio is heavily weighted towards ETFs, with 50% in the Vanguard S&P 500 ETF, 25% in the Invesco NASDAQ 100 ETF, and 25% in the Vanguard Information Technology Index Fund ETF Shares. Such a composition indicates a strong bias towards large-cap U.S. equities, especially in the tech sector. While this structure is common in growth-focused portfolios, it lacks diversification across different asset classes. A more balanced allocation could include bonds or international equities to mitigate risk and improve stability.

Growth Info

Historically, the portfolio has performed well with a Compound Annual Growth Rate (CAGR) of 16.79%. This impressive growth suggests strong past market conditions, especially for technology stocks. However, the maximum drawdown of -29.66% highlights potential volatility, which investors should be prepared for. Comparing this performance to benchmarks like the S&P 500 can provide context, but remember that past performance doesn't guarantee future results. Diversifying could help reduce the impact of such drawdowns in the future.

Projection Info

Using Monte Carlo simulations, which model potential future outcomes based on historical data, the portfolio shows a promising annualized return of 18.82%. The simulations suggest a wide range of potential outcomes, with the 5th percentile at 118.36% and the 67th percentile at 1,162.71%. While these projections offer insights, they rely on past data and assumptions, so actual future performance may vary. To improve projections, consider diversifying to reduce reliance on tech sector performance.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with a negligible cash allocation. This heavy stock allocation can drive growth during bull markets but also exposes the portfolio to significant risk during downturns. Diversification across asset classes, such as adding bonds or real estate, could stabilize returns and reduce overall risk. By aligning more closely with benchmark norms, the portfolio could achieve a better balance between risk and reward.

Sectors Info

  • Technology
    54%
  • Consumer Discretionary
    9%
  • Telecommunications
    9%
  • Health Care
    7%
  • Financials
    7%
  • Industrials
    5%
  • Consumer Staples
    4%
  • Energy
    2%
  • Utilities
    2%
  • Basic Materials
    1%
  • Real Estate
    1%

With over 54% in the technology sector, this portfolio is highly concentrated, increasing exposure to tech market fluctuations. While tech has been a strong performer, such concentration can lead to higher volatility, especially during interest rate hikes. Other sectors like consumer cyclicals and communication services have minor allocations. To decrease risk, consider a more balanced sector distribution that aligns with broader market indices, providing resilience against sector-specific downturns.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

The portfolio's geographic exposure is predominantly in North America, accounting for nearly 99% of the allocation. This lack of international diversification may limit growth opportunities and increase vulnerability to U.S. market fluctuations. Expanding geographic exposure to include developed and emerging markets could enhance diversification and provide access to varied economic cycles, potentially improving long-term returns and reducing risk.

Redundant positions Info

  • Vanguard Information Technology Index Fund ETF Shares
    Invesco NASDAQ 100 ETF
    High correlation

The portfolio contains highly correlated assets, particularly between the Vanguard Information Technology Index Fund ETF Shares and the Invesco NASDAQ 100 ETF. High correlation means these assets tend to move together, limiting diversification benefits. During market downturns, this could amplify losses. Reducing overlap by incorporating less correlated assets can improve risk management and help achieve a more balanced 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.

The portfolio shows potential for optimization using the Efficient Frontier, which balances risk and return by selecting the best asset allocation. However, before optimizing, addressing the high correlation among current assets is crucial. By reducing overlap and enhancing diversification, the portfolio can achieve a more efficient risk-return profile. This involves reallocating within current assets to improve overall efficiency.

Dividends Info

  • Invesco NASDAQ 100 ETF 0.60%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 0.90%

The portfolio's average dividend yield is 0.9%, with the Vanguard S&P 500 ETF contributing the highest yield of 1.2%. While dividends provide steady income, this yield is relatively low, reflecting the growth-focused nature of the portfolio. Investors seeking income may consider adding higher-yielding assets. However, for growth-oriented investors, reinvesting dividends can enhance compounding returns over time.

Ongoing product costs Info

  • Invesco NASDAQ 100 ETF 0.15%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.08%

The total expense ratio (TER) of this portfolio is a low 0.08%, with the Vanguard S&P 500 ETF offering the most cost-effective exposure at 0.03%. This low-cost structure is beneficial for long-term performance, as it minimizes expenses that can erode returns. Maintaining this cost efficiency while exploring diversification options can help optimize returns without significantly increasing expenses.

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