High-risk growth-focused portfolio with heavy S&P 500 concentration and low diversification

Report created on Jan 10, 2025

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

The portfolio consists of two Exchange-Traded Funds (ETFs): Vanguard S&P 500 ETF at 80% and Invesco S&P 500® Momentum ETF at 20%. This composition is heavily weighted towards large-cap U.S. equities, mirroring the S&P 500 index. While this can provide strong growth potential, it limits diversification. A more balanced portfolio typically includes a mix of asset classes such as bonds or international stocks. This allocation may suit those who are comfortable with higher risk and seek growth, but diversification could enhance stability.

Growth Info

Historically, the portfolio has performed well with a Compound Annual Growth Rate (CAGR) of 18.6%. However, it experienced a significant maximum drawdown of -33.37%, indicating potential volatility. The portfolio's returns are concentrated in a small number of days, which suggests reliance on market timing. While past performance is not indicative of future results, it highlights the potential for both high returns and high risk. Comparing this to a benchmark can help gauge relative performance and risk levels.

Projection Info

Forward projections using Monte Carlo simulations show a wide range of potential outcomes. With 1,000 simulations, the 50th percentile suggests a 1,261.43% return, while the 5th percentile shows 273.84%. This method uses historical data to estimate future performance, but it's important to remember that it cannot predict future market conditions. The high variability underscores the portfolio's risk profile. Investors should consider their risk tolerance and investment horizon when interpreting these projections.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely allocated to stocks, with 99.93% in equities and a negligible amount in cash. Such a concentration in a single asset class can lead to higher volatility and risk, particularly during market downturns. Diversification across different asset classes, such as bonds or real estate, can help mitigate risk by spreading exposure. Balancing stock investments with other asset classes can provide a cushion during market fluctuations, enhancing overall portfolio stability.

Sectors Info

  • Technology
    31%
  • Financials
    15%
  • Consumer Discretionary
    11%
  • Health Care
    11%
  • Telecommunications
    9%
  • Industrials
    8%
  • Consumer Staples
    6%
  • Energy
    3%
  • Utilities
    2%
  • Real Estate
    2%
  • Basic Materials
    2%

Sector allocation is heavily skewed towards technology at 31.25%, followed by financial services and consumer cyclicals. This concentration in tech may lead to increased volatility, especially in times of interest rate changes or tech sector disruptions. A more balanced sector allocation can reduce sector-specific risks. Aligning sector weights with broader market benchmarks can enhance diversification, potentially smoothing returns across different economic cycles and reducing the impact of sector-specific downturns.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographic exposure is predominantly in North America at 99.24%, with minimal allocation to Europe and Asia. This lack of geographic diversification may expose the portfolio to regional risks and limit opportunities in other markets. Expanding geographic exposure can help mitigate country-specific risks and capture growth potential in diverse economies. Including international equities can provide a hedge against domestic market volatility, offering a more balanced risk-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.

Portfolio optimization using the Efficient Frontier suggests potential adjustments to improve the risk-return ratio. This concept helps identify the best possible allocation for a given level of risk. However, optimization is limited to the current asset choices and may not address diversification needs. By exploring different asset combinations, investors can achieve a more efficient portfolio. This approach focuses on maximizing returns for the level of risk taken, rather than diversification or other goals.

Dividends Info

  • Invesco S&P 500® Momentum ETF 0.50%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.06%

The portfolio's total dividend yield is 1.06%, with contributions from both ETFs. While dividends can provide a steady income stream, the focus here is more on growth than income. For those seeking income, higher-yielding investments may be considered. Dividends can be reinvested to enhance compound growth over time. Evaluating dividend yields in the context of overall portfolio goals can help determine if adjustments are needed to balance growth and income.

Ongoing product costs Info

  • Invesco S&P 500® Momentum ETF 0.13%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.05%

The portfolio's total expense ratio (TER) is low at 0.05%, which is impressive and supports better long-term performance by minimizing costs. Keeping costs low is crucial as they can significantly impact net returns over time. Regularly reviewing and comparing expense ratios of alternative investments can ensure cost-effectiveness. Maintaining a low-cost strategy aligns with best practices in portfolio management, allowing more of the returns to contribute to overall growth.

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