High-Risk Growth Portfolio with Low Diversification and Significant Tech Exposure
Report created on Jul 9, 2024Risk profile
5/7
Diversification profile
2/5
Positions
-
QQ Invesco NASDAQ 100 ETF
QQQM - US46138G6492 50.00% -
SP SPDR® Portfolio S&P 500 ETF
SPLG - US78464A8541 50.00%
The portfolio is composed of two ETFs: Invesco NASDAQ 100 ETF and SPDR® Portfolio S&P 500 ETF, each making up 50% of the holdings. This results in a high concentration in large-cap U.S. stocks, leading to low diversification. The heavy weighting in these ETFs can offer substantial growth potential but also exposes the portfolio to higher volatility. Diversifying into other asset classes could help mitigate risk and provide more balanced growth opportunities.
Growth
Historically, this portfolio has demonstrated strong performance with a compound annual growth rate (CAGR) of 14.24%. However, it has also experienced significant drawdowns, with a maximum drawdown of -29.55%. This suggests that while the portfolio has the potential for high returns, it is also susceptible to substantial declines during market downturns. Investors should be prepared for these fluctuations and consider their risk tolerance before committing to this portfolio.
Projection
A Monte Carlo simulation, which uses random sampling to predict future outcomes, was conducted with 1,000 simulations. Assuming a hypothetical initial investment, the median (50th percentile) projected end value is 568.54%, with a potential upside of 821.73% at the 67th percentile. The simulation indicates a high likelihood of positive returns, with 994 out of 1,000 simulations showing gains. However, the 5th percentile projects a return of 88.9%, highlighting the importance of considering various outcomes.
Asset classes
- Stocks 100%
The portfolio is heavily skewed towards stocks, with 99.78% allocated to equities and a negligible 0.22% in cash. This allocation reflects a high-risk, high-reward strategy typical of growth-focused portfolios. While this can lead to significant gains during bull markets, it also increases vulnerability during market corrections. To reduce risk, incorporating bonds or other fixed-income securities could provide more stability and income generation.
Sectors
- Technology 40%
- Telecommunications 13%
- Consumer Discretionary 12%
- Health Care 9%
- Financials 7%
- Industrials 6%
- Consumer Staples 6%
- Energy 2%
- Utilities 2%
- Basic Materials 2%
- Real Estate 1%
Sector allocation is dominated by Technology at 40.17%, followed by Communication Services and Consumer Cyclicals. This concentration in tech and cyclical sectors suggests a strong growth orientation but also exposes the portfolio to sector-specific risks. A more balanced sector allocation could help mitigate these risks and provide more consistent returns across different market conditions. Diversifying into underrepresented sectors like Utilities or Basic Materials might enhance stability.
Regions
- North America 98%
- Europe Developed 1%
Geographically, the portfolio is overwhelmingly focused on North America, with 98.26% of assets in this region. This lack of international exposure limits the benefits of geographical diversification, such as reduced geopolitical risk and access to emerging market growth. Adding more international equities could provide a hedge against U.S.-specific risks and tap into growth opportunities in other regions. A more global approach could enhance overall portfolio resilience.
Dividends
- Invesco NASDAQ 100 ETF 0.70%
- SPDR® Portfolio S&P 500 ETF 1.30%
- Weighted yield (per year) 1.00%
Dividend yield data is not provided, but given the portfolio's focus on growth-oriented ETFs, the dividend income is likely to be modest. Growth stocks typically reinvest earnings to fuel expansion rather than paying out substantial dividends. Investors seeking regular income might consider adding dividend-paying stocks or income-focused funds to balance growth with income generation. This could provide a more predictable cash flow in addition to capital appreciation.
Ongoing product costs
- Invesco NASDAQ 100 ETF 0.15%
- SPDR® Portfolio S&P 500 ETF 0.02%
- Weighted costs total (per year) 0.08%
The portfolio's costs are relatively low, with a total expense ratio (TER) of 0.08%. This is advantageous as lower costs can significantly enhance net returns over time. Keeping investment costs low is a crucial aspect of long-term portfolio performance. Maintaining this cost efficiency while exploring additional diversification options will be beneficial. Investors should continue to monitor and manage expenses to maximize their investment returns.
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