High Risk High Reward Growth Portfolio with Limited Diversification and Heavy Technology Focus

Report created on May 30, 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 composed of four ETFs, with a significant concentration in the Invesco NASDAQ 100 ETF at 64%. The remaining allocations include VanEck Semiconductor ETF at 20%, First Trust NASDAQ Cybersecurity ETF at 11%, and Vanguard S&P 500 ETF at 5%. This composition indicates a strong focus on technology and growth-oriented investments. While such a structure can offer high returns, it also introduces higher risk due to the lack of diversification across multiple sectors and asset classes. To enhance stability, consider spreading investments across a wider range of sectors and asset types.

Growth Info

The historical performance of the portfolio is impressive, with a compound annual growth rate (CAGR) of 19.05%. However, it has experienced a maximum drawdown of -36.46%, indicating significant volatility. This performance suggests that while the portfolio has the potential for high returns, it also comes with substantial risk, particularly in volatile market conditions. Investors should be prepared for potential fluctuations in value and consider if they are comfortable with this level of risk. It might be beneficial to assess risk tolerance and adjust the portfolio accordingly to align with long-term financial goals.

Projection Info

A Monte Carlo simulation, which uses random sampling to predict future outcomes, suggests promising forward projections for the portfolio. With a hypothetical initial investment, the simulation indicates a median outcome of a 963.66% return. However, the range of outcomes varies widely, with the 5th percentile at 100.89% and the 67th percentile at 1,560.87%. This highlights the potential for both substantial gains and losses. Investors should consider these projections when planning their investment strategy, ensuring it aligns with their risk appetite and financial objectives.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, comprising 99.94% of the total allocation, with a negligible amount in cash. This high equity concentration aligns with a growth-focused strategy but also increases exposure to market volatility. While stocks can offer higher returns, they also come with greater risk. To manage risk more effectively, consider diversifying into other asset classes, such as bonds or real estate, which can provide balance and reduce overall portfolio volatility.

Sectors Info

  • Technology
    65%
  • Telecommunications
    11%
  • Consumer Discretionary
    9%
  • Health Care
    4%
  • Consumer Staples
    4%
  • Industrials
    3%
  • Financials
    1%
  • Basic Materials
    1%
  • Utilities
    1%
  • Energy
    1%

Technology dominates the sector allocation at 64.52%, followed by smaller allocations in communication services, consumer cyclicals, and healthcare. This heavy reliance on technology can lead to increased risk if the sector faces downturns. While technology has driven significant growth, diversifying into sectors like consumer defensive or industrials could provide more stability. A balanced sector allocation can help mitigate risks associated with sector-specific downturns, ensuring a more resilient portfolio in varying market conditions.

Regions Info

  • North America
    93%
  • Europe Developed
    3%
  • Asia Developed
    3%
  • Asia Emerging
    1%

The geographic composition is heavily skewed towards North America, which accounts for 92.71% of the portfolio. This concentration exposes the portfolio to regional risks and limits potential benefits from global diversification. While the U.S. market has historically performed well, international markets can offer growth opportunities and risk diversification. Consider expanding geographic exposure to include more developed and emerging markets, which can help balance regional risks and potentially enhance returns.

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 be optimized by adjusting the risk-return balance along the efficient frontier. The current portfolio has room for improvement, with an optimal expected return of 19.52% at a slightly higher risk level. Investors can choose to either increase risk for potentially higher returns or reduce risk for more stability, depending on their financial goals and risk tolerance. Prioritizing diversification and managing sector concentration can enhance the portfolio's efficiency and resilience.

Dividends Info

  • First Trust NASDAQ Cybersecurity ETF 0.40%
  • Invesco NASDAQ 100 ETF 0.60%
  • VanEck Semiconductor ETF 0.40%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 0.57%

The portfolio's dividend yield stands at 0.57%, indicating a focus on growth rather than income. While lower dividends can be expected in growth-oriented portfolios, they limit the potential for passive income. Investors seeking income generation might find this yield insufficient. To enhance dividend income, consider incorporating dividend-focused investments that can provide a steady cash flow. Balancing growth and income can create a more comprehensive investment strategy that meets diverse financial needs.

Ongoing product costs Info

  • First Trust NASDAQ Cybersecurity ETF 0.59%
  • Invesco NASDAQ 100 ETF 0.15%
  • VanEck Semiconductor ETF 0.35%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.23%

The portfolio's total expense ratio (TER) is 0.23%, which is relatively low and indicates cost-effective management. Lower costs can significantly impact net returns over time, enhancing overall performance. While the current TER is favorable, it's essential to remain vigilant about fees, as they can erode returns. Continuously monitor and compare expense ratios to ensure the portfolio remains cost-efficient. Minimizing costs while maintaining a diversified portfolio can contribute to achieving long-term financial goals.

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