A concentrated portfolio with high growth potential but limited diversification
Report created on Jan 27, 2025Risk profile
5/7
Diversification profile
2/5
Positions
-
AA Apple Inc
AAPL - US0378331005 50.00% -
VO Vanguard S&P 500 ETF
VOO - US9229083632 50.00%
The portfolio is composed of two assets: Apple Inc. stock and the Vanguard S&P 500 ETF, each making up 50% of the portfolio. This structure results in a concentrated investment heavily reliant on Apple and the broader U.S. stock market. While such concentration can lead to significant gains if these assets perform well, it also means higher exposure to specific risks. A more diversified portfolio usually includes a mix of different asset classes, such as bonds or international stocks, which can help cushion against volatility.
Growth
Historically, the portfolio has shown impressive growth with a compound annual growth rate (CAGR) of 20.07%. This performance has outpaced many benchmarks, thanks largely to Apple's strong market performance. However, the maximum drawdown of -32.32% indicates significant volatility, which can be unsettling during market downturns. While past performance is not a guarantee of future results, understanding these trends can help manage expectations. Consider whether you're comfortable with this level of fluctuation or if more stability is desired.
Projection
Monte Carlo simulations, which forecast potential outcomes using historical data, project an annualized return of 22.25% for this portfolio. While promising, it's important to note that such projections are not foolproof and can be influenced by market changes. The simulations show a wide range of possible outcomes, emphasizing the uncertainty inherent in investing. To mitigate this, consider periodically reviewing and adjusting your portfolio to align with your risk tolerance and financial goals.
Asset classes
- Stocks 100%
The portfolio is entirely invested in stocks, lacking diversification across asset classes. This all-equity approach can lead to higher returns during bull markets but also increases vulnerability to downturns. Typically, a diversified portfolio includes various asset classes like bonds, real estate, or cash, which can provide stability and reduce risk. Evaluating your risk tolerance and investment goals can help determine if introducing other asset classes might be beneficial.
Sectors
- Technology 66%
- Financials 7%
- Consumer Discretionary 5%
- Health Care 5%
- Telecommunications 4%
- Industrials 4%
- Consumer Staples 3%
- Energy 2%
- Utilities 1%
- Real Estate 1%
- Basic Materials 1%
The sector allocation is heavily skewed towards technology, with 66% of the portfolio invested in this sector. While tech stocks have driven significant growth, they are also subject to high volatility, especially during interest rate hikes or regulatory changes. The remaining sectors are underrepresented, limiting diversification. Diversifying across more sectors could reduce volatility and potential risks associated with sector-specific downturns.
Regions
- North America 100%
Geographically, the portfolio is entirely focused on North America, specifically the U.S. This lack of international exposure limits the benefits of global diversification, which can help mitigate country-specific risks. Expanding to include international stocks, particularly from emerging markets, can offer growth opportunities and reduce reliance on the U.S. market. Consider whether a more global approach aligns with your investment strategy.
Market capitalization
- Mega-cap 73%
- Large-cap 17%
- Mid-cap 9%
The portfolio is heavily weighted towards mega-cap stocks, with 73% of assets in this category. Mega-cap stocks are generally more stable and less volatile, but they may also offer slower growth compared to smaller companies. Including mid-cap or small-cap stocks could enhance growth potential and diversification. Assessing your risk tolerance and growth objectives can guide decisions on market capitalization distribution.
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 could benefit from optimization using the Efficient Frontier, which aims to achieve the best possible risk-return ratio. Currently, the concentration in two assets limits diversification and increases risk. By adjusting the allocation to include a wider range of assets, the portfolio could potentially achieve a more favorable balance between risk and return. This approach focuses on maximizing returns for a given level of risk.
Dividends
- Apple Inc 0.40%
- Vanguard S&P 500 ETF 1.20%
- Weighted yield (per year) 0.80%
The portfolio's dividend yield is relatively low at 0.80%, with Apple contributing 0.40% and the Vanguard S&P 500 ETF 1.20%. While dividends provide a steady income stream, this portfolio focuses more on growth than income generation. For investors seeking regular income, incorporating higher-yielding assets might be beneficial. Balancing growth and income can align the portfolio with your financial goals.
Ongoing product costs
- Vanguard S&P 500 ETF 0.03%
- Weighted costs total (per year) 0.02%
The portfolio's costs are impressively low, with the Vanguard S&P 500 ETF having a total expense ratio (TER) of just 0.03%. Keeping costs low is an effective way to enhance long-term returns, as fees can significantly erode gains over time. Maintaining this cost efficiency is a strong point for the portfolio, ensuring more of your investment works toward achieving your financial objectives.
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