Growth-Oriented Portfolio with High Technology Exposure and Strong Historic Performance but Needs Better Diversification

Report created on Dec 4, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio is primarily composed of ETFs and individual stocks, with a significant emphasis on technology. This composition indicates a growth-oriented strategy, with over 50% allocated to technology-related assets. The remaining investments are spread across various sectors, albeit with smaller allocations. This setup suggests a focus on capital appreciation, leveraging the potential of high-growth industries. However, the concentration in technology could expose the portfolio to higher volatility. To enhance stability, consider diversifying into other sectors to balance potential risks and rewards.

Growth Info

Historically, the portfolio has delivered impressive returns, boasting a compound annual growth rate (CAGR) of 24.35%. This strong performance is indicative of the portfolio's growth focus, particularly within the technology sector. However, the maximum drawdown of -38.32% highlights the potential volatility and risk associated with such concentrated investments. While the high returns are attractive, it's crucial to assess whether this level of risk aligns with long-term investment goals. Consider strategies to mitigate downside risk, such as diversification or incorporating more defensive assets, to maintain a balance between growth and stability.

Projection Info

Using a Monte Carlo simulation, which models potential future outcomes based on historical data, the portfolio shows promising growth prospects. With a hypothetical initial investment, the median projection indicates a potential increase of 1,443%, while the worst-case scenario still suggests significant gains. The simulation underscores the portfolio's potential for high returns, but it also highlights the inherent risks. To prepare for various market conditions, it's important to maintain a diversified approach and regularly review asset allocations. This proactive strategy can help manage risk and maximize the portfolio's growth potential over time.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, accounting for nearly 100% of the allocation. This concentration in equities reflects a high-risk, high-reward strategy, capitalizing on the potential for substantial capital gains. While this approach can yield significant returns, it also increases exposure to market volatility. To reduce risk, consider incorporating other asset classes, such as bonds or real estate, to create a more balanced portfolio. Diversifying across different asset types can provide stability and protect against market fluctuations, ensuring a more consistent performance over the long term.

Sectors Info

  • Technology
    53%
  • Consumer Discretionary
    9%
  • Telecommunications
    8%
  • Financials
    7%
  • Health Care
    6%
  • Industrials
    5%
  • Consumer Staples
    4%
  • Basic Materials
    2%
  • Energy
    2%
  • Utilities
    2%
  • Real Estate
    1%

The sector allocation is dominated by technology, which comprises over half of the portfolio. This focus on a single sector can lead to increased volatility and risk, especially if the technology market experiences a downturn. While tech investments have driven strong historical performance, it's essential to diversify across various sectors to mitigate potential risks. Allocating more resources to sectors like healthcare, consumer goods, or industrials can provide a buffer against sector-specific downturns. This diversification strategy can enhance the portfolio's resilience and improve its ability to weather different market conditions.

Regions Info

  • North America
    88%
  • Europe Developed
    5%
  • Asia Emerging
    2%
  • Japan
    2%
  • Asia Developed
    1%
  • Australasia
    1%

Geographically, the portfolio is heavily concentrated in North America, with over 88% of assets allocated to this region. This focus on a single geographic area can expose the portfolio to region-specific risks, such as economic downturns or political instability. To mitigate these risks, consider diversifying into other regions, such as Europe or Asia, to capitalize on global growth opportunities. Expanding geographic exposure can enhance the portfolio's resilience and provide access to a broader range of investment opportunities, ultimately leading to more stable and consistent returns over time.

Redundant positions Info

  • Invesco QQQ Trust
    Invesco NASDAQ 100 ETF
    Technology Select Sector SPDR® Fund
    High correlation
  • Vanguard S&P 500 ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio contains several highly correlated assets, particularly among technology-focused investments. This correlation suggests that these assets tend to move in the same direction, reducing the diversification benefits. While these investments may have contributed to past performance, their high correlation can increase risk during market downturns. To enhance diversification, consider reducing exposure to overlapping assets and reallocating resources to less correlated investments. This strategy can help manage risk and improve the portfolio's overall performance by ensuring a more balanced and diversified asset mix.

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. Highly correlated investments, particularly within the technology sector, offer limited diversification benefits and can increase risk. By reducing exposure to these assets, the portfolio can achieve a more balanced and diversified composition. Once this is addressed, optimization can focus on adjusting the asset mix along the efficient frontier. Moving towards riskier investments may offer higher returns, while shifting to more conservative assets can enhance stability. Careful consideration of risk tolerance and investment goals will guide these adjustments.

Dividends Info

  • Invesco QQQ Trust 0.60%
  • Invesco NASDAQ 100 ETF 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 2.90%
  • Technology Select Sector SPDR® Fund 0.70%
  • Weighted yield (per year) 0.98%

The portfolio's dividend yield stands at 0.98%, which is relatively low compared to more income-focused portfolios. This yield reflects the growth-oriented nature of the investments, prioritizing capital appreciation over income generation. While the focus on growth can lead to substantial returns, it may not provide a steady income stream for investors seeking regular payouts. To enhance income potential, consider incorporating dividend-paying stocks or ETFs with higher yields. This addition can provide a supplementary income stream, offering more balance between growth and income within the portfolio.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • Invesco NASDAQ 100 ETF 0.15%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Technology Select Sector SPDR® Fund 0.09%
  • Weighted costs total (per year) 0.08%

The portfolio's total expense ratio (TER) is relatively low at 0.08%, indicating cost-efficient management. Low costs are beneficial as they minimize the drag on returns, allowing more of the portfolio's gains to be realized by the investor. This cost efficiency is particularly important for long-term growth, as high fees can significantly erode returns over time. To maintain this advantage, continue to prioritize low-cost investment options and regularly review expenses. Keeping costs low can help maximize the portfolio's performance and contribute to achieving long-term financial goals.

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