A tech-heavy growth portfolio with high risk and low geographic diversification
Report created on Dec 31, 2024Risk profile
5/7
Diversification profile
2/5
Positions
-
HA ETFMG Prime Cyber Security ETF
HACK - US26924G2012 25.00% -
VG Vanguard Information Technology Index Fund ETF Shares
VGT - US92204A7028 20.00% -
VO Vanguard S&P 500 ETF
VOO - US9229083632 20.00% -
VI Vanguard Dividend Appreciation Index Fund ETF Shares
VIG - US9219088443 15.00% -
IV iShares Core S&P 500 ETF
IVV - US4642872000 10.00% -
VH Vanguard Health Care Index Fund ETF Shares
VHT - US92204A5048 10.00%
This portfolio is heavily weighted towards technology and health care sectors, with significant allocations in ETFs like the ETFMG Prime Cyber Security ETF and Vanguard Information Technology Index Fund ETF. The portfolio's composition reflects a growth-oriented strategy, focusing on sectors with high potential returns. However, it lacks diversity, with a concentration in a few sectors and asset classes. This focus can lead to higher volatility, as the portfolio is more susceptible to sector-specific downturns. To enhance stability, consider diversifying into different asset classes and sectors to spread risk and potentially smooth out returns over time.
Growth
Historically, the portfolio has delivered a strong Compound Annual Growth Rate (CAGR) of 14.86%, indicating robust past performance. However, it has also experienced a significant maximum drawdown of -31.57%, highlighting its vulnerability during market downturns. Comparing this to a benchmark like the S&P 500, which has a lower historical drawdown, suggests that while the portfolio has high growth potential, it also carries substantial risk. Investors should be aware that past performance is not indicative of future results and should prepare for similar volatility in the future.
Projection
Using Monte Carlo simulations, the portfolio shows a wide range of potential future outcomes. The 5th percentile indicates a possible 84.98% increase, while the 50th and 67th percentiles suggest more optimistic outcomes of 493.85% and 712.01%, respectively. This simulation uses historical data to project future returns, but it's essential to note that these are estimates and not guarantees. The high variability in outcomes reflects the portfolio's growth-oriented nature and inherent risk. Investors should consider their risk tolerance and investment horizon when interpreting these projections.
Asset classes
- Stocks 100%
The portfolio is predominantly composed of stocks, with a negligible allocation to cash. This heavy stock allocation aligns with a growth-focused strategy, aiming for capital appreciation. However, this lack of asset class diversification can increase risk, particularly during market downturns when stocks may underperform. To enhance diversification, consider adding other asset classes such as bonds or commodities, which can provide stability and reduce overall portfolio volatility. A more balanced asset allocation could help mitigate risks and improve risk-adjusted returns.
Sectors
- Technology 55%
- Health Care 15%
- Industrials 7%
- Financials 7%
- Consumer Discretionary 4%
- Consumer Staples 3%
- Telecommunications 3%
- Energy 1%
- Utilities 1%
- Basic Materials 1%
- Real Estate 1%
With over 55% of the portfolio allocated to the technology sector, it is significantly tech-heavy. While this can drive growth, it also exposes the portfolio to sector-specific risks, such as regulatory changes or technological disruptions. The healthcare sector also has a notable presence, contributing to diversification within the portfolio. However, other sectors like energy and utilities are underrepresented. To balance the portfolio, consider increasing exposure to these less represented sectors, which can offer stability and reduce reliance on the performance of the technology sector.
Regions
- North America 98%
- Africa/Middle East 1%
- Japan 1%
The portfolio has a strong geographic bias towards North America, with 98% of assets allocated there. While this reflects a focus on the U.S. market, it limits exposure to international opportunities and the diversification benefits they provide. The minimal allocation to regions like Europe and Asia may result in missed growth opportunities in emerging markets. To enhance geographic diversification, consider increasing exposure to international markets. This can help mitigate regional risks and tap into global economic growth, offering a more balanced risk-return profile.
Redundant positions
-
High correlationiShares Core S&P 500 ETFVanguard Dividend Appreciation Index Fund ETF SharesVanguard S&P 500 ETF
The portfolio contains highly correlated assets, particularly among the S&P 500-related ETFs. This correlation means that these assets tend to move together, reducing the diversification benefits within the portfolio. In market downturns, such high correlation can amplify losses. To improve diversification, consider replacing some of these overlapping assets with investments that have lower correlations. This can help spread risk more effectively and potentially enhance the portfolio's resilience against 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.
The portfolio could benefit from optimization using the Efficient Frontier concept, which seeks the best possible risk-return ratio. Currently, the portfolio's high correlation among assets suggests room for improvement. By adjusting allocations within the existing asset pool, it may be possible to achieve a more efficient mix that enhances returns for a given level of risk. This process involves analyzing the risk-return trade-offs and reallocating assets to better align with the investor's risk tolerance and return expectations.
Dividends
- ETFMG Prime Cyber Security ETF 0.10%
- iShares Core S&P 500 ETF 0.90%
- Vanguard Information Technology Index Fund ETF Shares 0.60%
- Vanguard Health Care Index Fund ETF Shares 1.20%
- Vanguard Dividend Appreciation Index Fund ETF Shares 1.70%
- Vanguard S&P 500 ETF 1.20%
- Weighted yield (per year) 0.85%
The portfolio's dividend yield stands at 0.85%, with contributions from ETFs like the Vanguard Dividend Appreciation Index Fund. While the yield is modest, it provides a steady income stream that can complement capital gains. For growth-oriented investors, dividends may not be the primary focus, but they offer a cushion during market fluctuations. If income generation is a priority, consider increasing allocations to higher-yielding assets. Otherwise, maintaining a balance between growth and income can support long-term financial goals.
Ongoing product costs
- ETFMG Prime Cyber Security ETF 0.60%
- iShares Core S&P 500 ETF 0.03%
- Vanguard Information Technology Index Fund ETF Shares 0.10%
- Vanguard Health Care Index Fund ETF Shares 0.10%
- Vanguard Dividend Appreciation Index Fund ETF Shares 0.06%
- Vanguard S&P 500 ETF 0.03%
- Weighted costs total (per year) 0.20%
The portfolio's total expense ratio (TER) is 0.2%, which is relatively low and supports better long-term returns by minimizing costs. The cost efficiency of ETFs like the iShares Core S&P 500 ETF, with an expense ratio of 0.03%, is particularly commendable. Keeping costs low is crucial for maximizing net returns over time. However, it's essential to ensure that low costs do not come at the expense of diversification and risk management. Regularly review the cost structure to ensure it aligns with investment objectives and provides value.
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