Growth-Oriented Portfolio with High Risk and Low Diversity Focused on US Equities

Report created on Nov 22, 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 primarily composed of three ETFs: Invesco QQQ Trust, Vanguard S&P 500 ETF, and Avantis U.S. Small Cap Value ETF. The Invesco QQQ Trust holds the largest share at 50%, followed by the Vanguard S&P 500 ETF at 37.5%, and the Avantis U.S. Small Cap Value ETF at 12.5%. This allocation indicates a strong emphasis on large-cap U.S. equities, with a small allocation to small-cap value stocks. The portfolio is heavily weighted towards equities, with minimal cash holdings, reflecting a growth-oriented strategy.

Growth Info

Historically, this portfolio has demonstrated strong performance, with a compound annual growth rate (CAGR) of 20.47%. However, it has also experienced significant volatility, evidenced by a maximum drawdown of -32.15%. This suggests that while the portfolio has the potential for substantial returns, it also carries a high level of risk. Investors should be prepared for periods of significant value fluctuations, which are inherent in growth-focused investment strategies.

Projection Info

Using a Monte Carlo simulation, which involves running numerous scenarios to project future portfolio performance, the results are promising. Assuming a hypothetical initial investment, the portfolio's median expected return is 1,049.77%, with a 5th percentile return of 147.69% and a 67th percentile return of 1,634.71%. The annualized return of all simulations is 22.02%. This suggests a high probability of positive returns, but also highlights the potential for significant variability in outcomes.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely invested in stocks, with an allocation of 99.9% to equities and a negligible amount in cash. This single asset class focus can lead to higher potential returns, but also increases the risk of the portfolio. Diversifying into other asset classes, such as bonds or real estate, could help mitigate this risk and provide a more balanced investment approach, offering protection against market downturns.

Sectors Info

  • Technology
    39%
  • Consumer Discretionary
    13%
  • Telecommunications
    12%
  • Financials
    9%
  • Health Care
    7%
  • Industrials
    7%
  • Consumer Staples
    6%
  • Energy
    3%
  • Basic Materials
    2%
  • Utilities
    2%
  • Real Estate
    1%

Sector allocation reveals a heavy concentration in technology, which accounts for 38.7% of the portfolio. Other significant sectors include consumer cyclicals, communication services, and financial services. This concentration in a few sectors increases the portfolio's vulnerability to sector-specific risks. To enhance diversification, consider spreading investments across a broader range of sectors to reduce reliance on any single industry, which could stabilize returns over time.

Regions Info

  • North America
    98%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly concentrated in North America, with 98.3% of assets allocated to this region. This lack of geographic diversification exposes the portfolio to risks specific to the U.S. market. Expanding exposure to international markets, including Europe and Asia, could provide additional growth opportunities and reduce reliance on the economic conditions of a single region, enhancing overall portfolio stability.

Redundant positions Info

  • Invesco QQQ Trust
    Vanguard S&P 500 ETF
    High correlation

The portfolio exhibits high correlation between the Invesco QQQ Trust and the Vanguard S&P 500 ETF. This overlap suggests that these assets may move in tandem, offering limited diversification benefits. Reducing exposure to highly correlated assets and introducing investments with lower correlation could improve the portfolio's risk-adjusted returns. Diversifying with assets that have different performance drivers can help mitigate the impact of market volatility.

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.

To optimize this portfolio, it's essential to address the high correlation between certain assets, which limits diversification benefits. The efficient frontier concept suggests that the portfolio can achieve better risk-adjusted returns by diversifying across uncorrelated assets. Currently, the portfolio's low diversity and high sector concentration indicate room for improvement. By reducing overlap and increasing exposure to diverse sectors and asset classes, the portfolio could move closer to the efficient frontier, enhancing overall performance.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Invesco QQQ Trust 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 0.94%

The portfolio's overall dividend yield stands at 0.94%, with the highest yield coming from the Avantis U.S. Small Cap Value ETF at 1.5%. The Invesco QQQ Trust and Vanguard S&P 500 ETF contribute yields of 0.6% and 1.2%, respectively. This relatively low yield indicates a focus on capital appreciation over income generation. Investors seeking regular income might consider adding higher-yielding assets to balance growth with income, enhancing the portfolio's overall return profile.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Invesco QQQ Trust 0.20%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.14%

The portfolio's total expense ratio (TER) is 0.14%, which is relatively low and indicates cost-efficient management. The Vanguard S&P 500 ETF has the lowest individual cost at 0.03%, while the Avantis U.S. Small Cap Value ETF is the highest at 0.25%. Keeping costs low is crucial for maximizing net returns. Investors should continue to monitor expense ratios and consider cost-effective options to maintain portfolio efficiency, ensuring that fees do not erode long-term gains.

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