High Risk Low Diversity Growth Portfolio with Heavy Tech Focus and Strong Historical Performance

Report created on Jul 7, 2024

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 composed primarily of ETFs with a heavy concentration in large-cap U.S. stocks. It includes the Vanguard S&P 500 ETF, Schwab U.S. Dividend Equity ETF, Invesco QQQ Trust, and Vanguard Information Technology Index Fund ETF Shares. This allocation indicates a strong focus on established U.S. companies with an emphasis on technology and dividend-paying stocks. While this setup may cater to growth, it lacks diversification, which can expose the portfolio to higher volatility. To optimize for stability and potential growth, consider incorporating a broader range of asset classes to mitigate risks associated with market fluctuations.

Growth Info

Historically, the portfolio has shown impressive performance, with a compound annual growth rate (CAGR) of 15.7%. However, it experienced a significant maximum drawdown of -31.96%, reflecting its susceptibility to market downturns. The returns are concentrated, with 90% of them occurring in just 38 days. This indicates a reliance on short bursts of market activity, which can be risky. To improve resilience, consider diversifying investments to include less volatile options that can provide steadier returns over time, reducing dependency on market timing for performance.

Projection Info

A Monte Carlo simulation was conducted with 1,000 iterations, assuming a hypothetical initial investment. The simulation projects an annualized return of 19.12%, with a 50th percentile outcome of 839.01% growth. This suggests strong potential for future returns, but the 5th percentile shows only a 133.02% increase, highlighting the risk of significant underperformance. Monte Carlo simulations help understand potential future outcomes by modeling various market scenarios. To enhance the probability of achieving favorable results, consider strategies that balance risk and return, such as diversifying into different asset classes.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily skewed towards stocks, accounting for 99.86% of the total allocation, with a negligible cash component. This concentration in equities is typical for a growth-focused strategy but leaves the portfolio vulnerable to stock market volatility. While equities offer high growth potential, they also come with increased risk. To manage risk effectively, consider incorporating other asset classes such as bonds or real estate, which can provide diversification benefits and potentially stabilize returns during periods of market turbulence.

Sectors Info

  • Technology
    39%
  • Financials
    11%
  • Health Care
    10%
  • Consumer Discretionary
    9%
  • Telecommunications
    7%
  • Consumer Staples
    7%
  • Industrials
    7%
  • Energy
    5%
  • Basic Materials
    1%
  • Utilities
    1%
  • Real Estate
    1%

Sector allocation reveals a pronounced focus on technology, making up 39.31% of the portfolio, followed by financial services and healthcare. While tech stocks have driven recent market gains, their volatility can lead to significant swings in portfolio value. A diversified sector allocation can help mitigate sector-specific risks and ensure more consistent performance. Including sectors like consumer staples or utilities, known for stability, could provide balance against the high-growth, high-risk tech exposure. This approach can help achieve a more stable long-term return profile.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly concentrated in North America, with 99.03% of assets based there. This lack of geographical diversification can leave the portfolio exposed to region-specific economic or political risks. While the U.S. market has been a strong performer, global diversification can offer exposure to different economic cycles and growth opportunities. Consider expanding into international markets to capture growth in emerging economies and reduce reliance on the U.S. market. This approach can enhance the portfolio's resilience against localized downturns.

Redundant positions Info

  • Vanguard Information Technology Index Fund ETF Shares
    Invesco QQQ Trust
    High correlation

The portfolio exhibits high correlation among assets, particularly between the Vanguard Information Technology Index Fund ETF Shares and Invesco QQQ Trust. This means these assets tend to move in the same direction, reducing diversification benefits. High correlation can amplify risk during market downturns as correlated assets may decline simultaneously. To improve diversification, consider reducing exposure to overlapping assets and incorporating investments that historically have low correlation with existing holdings. This strategy can help achieve a more balanced risk-return profile.

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, addressing the issue of overlapping assets is crucial. High correlation among current holdings suggests limited diversification benefits. By reducing exposure to highly correlated assets, the portfolio can achieve better diversification. Moving along the efficient frontier can help tailor the portfolio to be riskier or more conservative. This involves adjusting the asset mix to find the optimal balance between risk and return. For a riskier portfolio, increase equity exposure; for a more conservative approach, consider adding fixed-income securities. Ensuring alignment with financial goals and risk tolerance is key.

Dividends Info

  • Invesco QQQ Trust 0.60%
  • Schwab U.S. Dividend Equity ETF 3.30%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.70%

The portfolio's dividend yield stands at 1.7%, with the Schwab U.S. Dividend Equity ETF contributing the most at 3.3%. While dividends provide a steady income stream, the overall yield is moderate, reflecting the growth-oriented nature of the portfolio. For investors seeking higher income, increasing allocations to dividend-focused investments could be beneficial. However, it's essential to balance this with growth objectives. A diversified approach that includes both growth and income-generating assets can help achieve financial goals while maintaining income stability.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • 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 low at 0.08%, indicating cost-efficiency. The Vanguard S&P 500 ETF has the lowest cost at 0.03%, while Invesco QQQ Trust is the highest at 0.2%. Low costs are crucial for maximizing net returns over time, as high fees can erode gains. Maintaining a focus on cost-effective investments is a smart strategy. While keeping costs low is important, ensure that the investment choices align with overall financial goals and risk tolerance. Balancing cost with performance potential is key for long-term success.

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