Growth-Oriented Portfolio with Low Diversification and High Technology Exposure

Report created on Jun 23, 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 of six ETFs, with a significant allocation towards large-cap U.S. equities. The iShares Core S&P 500 ETF and Invesco NASDAQ 100 ETF make up half of the portfolio, indicating a strong focus on major U.S. indices. The Schwab U.S. Dividend Equity ETF and Avantis U.S. Small Cap Value ETF provide some exposure to dividends and small-cap value stocks. However, technology dominates the sector allocation, as seen with the VanEck Semiconductor ETF and Vanguard Information Technology Index Fund ETF Shares. This composition suggests a strong belief in the growth potential of U.S. equities, particularly within the tech sector.

Growth Info

Historically, the portfolio has performed well with a compound annual growth rate (CAGR) of 18.23%. This impressive performance is indicative of the strong bull market in U.S. equities, especially within the technology sector. However, the portfolio has also experienced significant volatility, with a maximum drawdown of -26.31%. This suggests that while the returns have been robust, the risk of substantial short-term losses is present. The portfolio's returns are concentrated in a few critical days, which highlights the importance of staying invested during volatile periods to capture these gains.

Projection Info

Using a Monte Carlo simulation with 1,000 trials, the portfolio shows a promising forward projection. The simulation indicates a 50th percentile end value of 1,075.02%, suggesting strong potential growth. The portfolio's annualized return across all simulations is 21.95%, with nearly all simulations resulting in positive returns. This analysis underscores the portfolio's growth potential but also highlights its reliance on favorable market conditions. It's essential to remain aware of the risks associated with such projections, as they assume historical trends will continue into the future.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily concentrated in equities, with 99.83% allocated to stocks, leaving a minimal allocation to cash. This high equity exposure aligns with a growth-focused investment strategy, aiming for capital appreciation over time. However, the lack of diversification across asset classes could increase vulnerability to market fluctuations. While equities offer the potential for high returns, they also come with increased risk. To mitigate this, consider diversifying into other asset classes, such as bonds, to balance risk and reward, especially during market downturns.

Sectors Info

  • Technology
    43%
  • Financials
    11%
  • Consumer Discretionary
    10%
  • Health Care
    8%
  • Industrials
    7%
  • Telecommunications
    7%
  • Consumer Staples
    6%
  • Energy
    5%
  • Basic Materials
    2%
  • Utilities
    1%
  • Real Estate
    1%

The sector allocation is heavily skewed towards technology, which comprises 42.87% of the portfolio. This concentration reflects a strong belief in the tech sector's growth prospects. Other sectors like financial services, consumer cyclicals, and healthcare have moderate representation. However, sectors like utilities and real estate have minimal exposure, indicating limited diversification. While technology has been a strong performer, overexposure to a single sector can increase risk. To enhance diversification, consider allocating more evenly across various sectors to reduce dependence on the tech industry's performance.

Regions Info

  • North America
    97%
  • Asia Developed
    1%
  • Europe Developed
    1%

Geographically, the portfolio is predominantly focused on North America, with 96.95% of assets allocated there. This heavy concentration in the U.S. market aligns with the portfolio's emphasis on large-cap U.S. equities. While this focus has historically provided strong returns, it also exposes the portfolio to regional risks. Minor allocations to Asia Developed, Europe Developed, and other regions offer limited geographic diversification. To mitigate regional risks and capture global growth opportunities, consider increasing exposure to international markets, thereby enhancing geographical diversification.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Vanguard Information Technology Index Fund ETF Shares
    iShares Core S&P 500 ETF
    VanEck Semiconductor ETF
    High correlation

The portfolio exhibits high asset correlations, particularly among the Invesco NASDAQ 100 ETF, Vanguard Information Technology Index Fund ETF Shares, iShares Core S&P 500 ETF, and VanEck Semiconductor ETF. This high correlation suggests that these assets tend to move in the same direction, reducing diversification benefits. While correlated assets can amplify returns in a bull market, they also increase risk during downturns. To improve diversification, consider reducing exposure to overlapping assets and introducing more uncorrelated investments to balance the portfolio's risk and 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, it's crucial to address the portfolio's high asset correlation, which limits diversification benefits. Reducing exposure to overlapping assets can enhance diversification. To achieve a riskier portfolio, increase allocations to high-growth sectors or equities. Conversely, for a more conservative approach, consider adding bonds or dividend-focused investments. Moving along the efficient frontier involves balancing risk and return, ensuring the portfolio aligns with your financial goals. Prioritizing diversification and managing correlations can lead to a more resilient and optimized portfolio over time.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • iShares Core S&P 500 ETF 1.20%
  • Invesco NASDAQ 100 ETF 0.60%
  • Schwab U.S. Dividend Equity ETF 3.40%
  • VanEck Semiconductor ETF 0.40%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Weighted yield (per year) 1.41%

The portfolio's dividend yield stands at 1.41%, with the Schwab U.S. Dividend Equity ETF contributing the highest yield at 3.4%. This yield provides a modest income stream, complementing the portfolio's growth focus. While dividends can offer stability and income, the overall yield is relatively low due to the portfolio's emphasis on growth-oriented sectors like technology. To enhance income, consider increasing allocation to dividend-focused investments. However, balance is key, as excessive focus on dividends may detract from the growth potential that the portfolio currently seeks to achieve.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • iShares Core S&P 500 ETF 0.03%
  • Invesco NASDAQ 100 ETF 0.15%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • VanEck Semiconductor ETF 0.35%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Weighted costs total (per year) 0.12%

The portfolio's total expense ratio (TER) is 0.12%, which is relatively low and reflects cost-effective management. Lower costs can significantly enhance net returns over time, especially in a growth-oriented portfolio. Each ETF within the portfolio has varying expense ratios, with the VanEck Semiconductor ETF having the highest at 0.35%. While it's crucial to keep costs low, ensure that the investment choices align with the portfolio's objectives. Continuously review and compare expense ratios to ensure that you're getting the best value for your investment, balancing costs with potential returns.

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