A tech-focused portfolio with high growth potential but limited geographic diversification

Report created on Jan 23, 2025

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

The portfolio is heavily weighted towards equities, with a significant concentration in large-cap U.S. stocks. The Vanguard S&P 500 ETF makes up half of the portfolio, providing broad market exposure, while the Invesco NASDAQ 100 ETF and Vanguard Information Technology Index Fund ETF Shares focus on tech-heavy indices. Compared to typical benchmarks, this portfolio is less diversified across asset classes, focusing solely on stocks. While this concentration can drive growth, it also increases vulnerability to market volatility. Consider diversifying into other asset classes like bonds or international equities to reduce risk and enhance stability.

Growth Info

Historically, the portfolio has delivered an impressive CAGR of 16.75%, significantly outperforming many benchmarks. However, it has also experienced a substantial maximum drawdown of -29.62%, indicating periods of high volatility. This performance suggests a strong growth potential but also highlights the risks associated with a concentrated equity portfolio. For those comfortable with this level of risk, maintaining the current allocation may be appropriate. However, for those seeking to mitigate potential losses, incorporating more defensive assets could provide a buffer during downturns.

Projection Info

Using Monte Carlo simulations, the portfolio's potential future performance was assessed. These simulations use historical data to model a range of possible outcomes, indicating an annualized return of 19.69%. The projections show a wide range of potential end values, highlighting the portfolio's high-risk, high-reward nature. While the simulations suggest positive returns in most scenarios, it's important to remember that past performance is not a guarantee of future results. Regularly reviewing and adjusting the portfolio in response to market changes can help optimize outcomes.

Asset classes Info

  • Stocks
    100%

The allocation is exclusively in stocks, lacking any fixed income or alternative investments. This singular focus can lead to high returns during bull markets but also exposes the portfolio to significant downturns. Diversification across asset classes is crucial for managing risk and ensuring more stable returns. Consider integrating bonds or real estate investments to balance the portfolio's risk profile. This approach can provide income stability and reduce volatility, aligning with long-term growth objectives.

Sectors Info

  • Technology
    49%
  • Consumer Discretionary
    10%
  • Telecommunications
    10%
  • Health Care
    7%
  • Financials
    7%
  • Industrials
    5%
  • Consumer Staples
    5%
  • Energy
    2%
  • Utilities
    2%
  • Basic Materials
    1%
  • Real Estate
    1%

The portfolio is heavily skewed towards the technology sector, which comprises 49% of the total allocation. This concentration can lead to higher volatility, especially during periods of tech sector instability. While tech stocks have driven substantial growth, they are also susceptible to rapid changes due to regulatory shifts or technological advancements. Balancing this exposure with investments in other sectors like healthcare or consumer staples could enhance stability and protect against sector-specific downturns.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly concentrated in North America, with 99% of assets allocated to this region. This lack of international diversification can increase vulnerability to regional economic downturns or policy changes. Expanding into markets such as Europe or Asia could provide exposure to different economic cycles and growth opportunities. Diversifying geographically can help mitigate regional risks and enhance overall portfolio resilience.

Market capitalization Info

  • Mega-cap
    50%
  • Large-cap
    34%
  • Mid-cap
    14%
  • Small-cap
    2%

The portfolio is predominantly invested in large-cap stocks, with mega and big caps making up 84% of the allocation. This focus on established companies offers stability and consistent performance but may limit exposure to the higher growth potential of smaller companies. Including a mix of mid and small-cap stocks could enhance growth prospects and provide a more balanced risk-return profile. This diversification can capture opportunities across different market segments.

Redundant positions Info

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

The portfolio exhibits high correlation among its assets, particularly between the Vanguard Information Technology Index Fund ETF Shares and the Invesco NASDAQ 100 ETF. This correlation suggests that these assets move together, limiting diversification benefits. During market downturns, this can lead to amplified losses. To improve risk management, consider reducing overlap by replacing one of these ETFs with assets that have lower correlation to the rest of the portfolio, thereby enhancing 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.

Click on the colored dots to explore allocations.

The portfolio can benefit from optimization using the Efficient Frontier, which helps in achieving the best possible risk-return ratio with the current assets. The current allocation could be adjusted to better align with this optimal balance, potentially enhancing returns for the given level of risk. However, remember that this optimization focuses on the existing assets and their allocation, not necessarily on diversification or other investment goals. Regularly revisiting this analysis can help maintain an efficient portfolio.

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 dividend yield is relatively modest at 0.90%, reflecting its focus on growth-oriented tech stocks. While dividends can provide a steady income stream, this portfolio prioritizes capital appreciation over income generation. For those seeking to boost income, integrating higher-dividend-paying stocks from sectors like utilities or consumer staples could complement the growth-focused strategy. This approach can provide a balance between growth and income needs.

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 portfolio's total expense ratio (TER) is impressively low at 0.08%, which is beneficial for long-term performance. Lower costs mean more of your returns stay in your pocket, compounding over time to enhance overall gains. Maintaining this cost efficiency is crucial, but it's also important to ensure that the portfolio is well-diversified. While the current cost structure is advantageous, expanding into other asset classes or regions should be done with an eye on maintaining reasonable expenses.

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