High-Risk Low-Diversity Portfolio with Heavy Focus on Technology and U.S. Market Exposure

Report created on Dec 4, 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 heavily weighted towards ETFs, with a strong focus on U.S. equities. The Vanguard S&P 500 ETF and Invesco QQQ Trust make up more than half of the portfolio, indicating a significant emphasis on large-cap U.S. stocks. NVIDIA Corporation, a common stock, adds a tech-heavy tilt. The presence of Schwab U.S. Dividend Equity ETF and Schwab U.S. Small-Cap ETF offers some diversification within U.S. equities. The Valkyrie Bitcoin Miners ETF introduces a speculative element. This composition reflects a growth-oriented strategy but lacks diversification, which could expose the portfolio to sector-specific risks.

Growth Info

With a hypothetical initial investment, the portfolio has demonstrated a strong historical performance, boasting a CAGR of 27.76%. However, this impressive return comes with a significant max drawdown of -34.55%, indicating high volatility. The concentrated nature of the portfolio means that a small number of days account for the majority of returns, making it susceptible to market timing risks. While the historical performance is encouraging, it also highlights the need for a robust risk management strategy to protect against potential downturns.

Projection Info

Using a Monte-Carlo simulation, which involves running multiple scenarios to predict potential outcomes, the portfolio shows a wide range of future possibilities. With a hypothetical initial investment, the simulation predicts a 50th percentile return of 1,078.58%, with a 67th percentile reaching up to 2,370.49%. The high annualized return of 30.49% across simulations suggests potential for significant growth. However, the 5th percentile shows a potential loss of -37.65%, underscoring the high-risk nature of this portfolio. Diversification could help mitigate some of these risks.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly composed of stocks, accounting for nearly 100% of the allocation. This heavy stock allocation aligns with a growth-oriented strategy but lacks the balance that bonds or other asset classes could provide. The absence of significant cash or bond holdings means the portfolio might not be well-positioned to weather market downturns. Introducing more diverse asset classes could help stabilize returns and reduce overall risk, offering a more balanced risk-reward profile.

Sectors Info

  • Technology
    46%
  • Financials
    12%
  • Consumer Discretionary
    9%
  • Health Care
    7%
  • Telecommunications
    7%
  • Industrials
    6%
  • Consumer Staples
    5%
  • Energy
    3%
  • Basic Materials
    1%
  • Utilities
    1%
  • Real Estate
    1%

The sector allocation is heavily skewed towards technology, which comprises nearly half of the portfolio. While this can drive growth, it also increases vulnerability to sector-specific downturns. Other sectors like financial services, consumer cyclicals, and healthcare provide some diversification but remain underrepresented. A more balanced sector allocation could help smooth out returns and reduce reliance on the tech sector's performance. Expanding exposure to underrepresented sectors might enhance diversification and reduce potential volatility.

Regions Info

  • North America
    98%
  • Australasia
    1%
  • Europe Developed
    1%

Geographically, the portfolio is predominantly focused on North America, with over 97% of assets allocated there. This regional concentration exposes the portfolio to U.S. market risks and limits exposure to international growth opportunities. While this focus can benefit from U.S. market strength, it also misses out on potential gains from emerging and developed markets abroad. Diversifying geographically could provide access to varied economic cycles and reduce regional risk, potentially enhancing long-term growth prospects.

Redundant positions Info

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

The portfolio contains highly correlated assets, particularly between the Invesco QQQ Trust and Vanguard S&P 500 ETF. This correlation suggests overlapping exposure to similar market movements, limiting diversification benefits. High correlation means that these assets tend to move together, which could amplify losses during market downturns. Reducing correlation by introducing assets with different performance drivers could enhance diversification and improve 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 can be optimized by addressing the high correlation between assets, particularly the overlap in large-cap U.S. equities. By reducing correlated holdings and introducing more diverse assets, the portfolio can achieve better diversification and potentially smoother returns. Moving along the efficient frontier involves balancing risk and return, allowing for a more conservative or riskier portfolio based on individual preferences. Before optimizing, it's crucial to assess the current risk profile and ensure it aligns with the investor's goals and risk appetite.

Dividends Info

  • Invesco QQQ Trust 0.60%
  • Schwab U.S. Small-Cap ETF 1.70%
  • Schwab U.S. Dividend Equity ETF 3.30%
  • Vanguard S&P 500 ETF 1.20%
  • Valkyrie Bitcoin Miners ETF 0.20%
  • Weighted yield (per year) 1.10%

The portfolio's dividend yield is relatively modest at 1.1%, with the Schwab U.S. Dividend Equity ETF contributing the highest yield of 3.3%. While dividends can provide a steady income stream, the overall yield is not a significant component of the portfolio's return strategy. For investors seeking income, increasing allocation to higher-yielding assets might be beneficial. However, given the portfolio's growth focus, dividends are a supplementary benefit rather than a core component of the investment strategy.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • Schwab U.S. Small-Cap ETF 0.04%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard S&P 500 ETF 0.03%
  • Valkyrie Bitcoin Miners ETF 0.75%
  • Weighted costs total (per year) 0.12%

The portfolio's total expense ratio (TER) is 0.12%, which is relatively low and helps keep investment costs down. The Vanguard S&P 500 ETF and Schwab U.S. Small-Cap ETF contribute to this low-cost structure with minimal fees. However, the Valkyrie Bitcoin Miners ETF has a higher expense ratio of 0.75%, which could impact overall returns if its performance doesn't justify the cost. Keeping expenses low is crucial for maximizing net returns, so monitoring and managing costs should remain a priority.

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