Highly concentrated growth-focused portfolio with significant technology sector exposure

Report created on Jan 12, 2025

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

This portfolio is composed of three ETFs, with a strong focus on U.S. equities, particularly in the technology sector. The Vanguard S&P 500 ETF and Technology Select Sector SPDR® Fund each account for 37.5% of the portfolio, while the Vanguard Growth Index Fund ETF Shares makes up the remaining 25%. Compared to a typical balanced portfolio, this allocation is heavily skewed towards growth-oriented stocks, which may not provide sufficient diversification. While the portfolio is well-suited for aggressive growth, it lacks exposure to bonds and international equities, which could help mitigate risk.

Growth Info

Historically, the portfolio has delivered impressive returns, with a CAGR of 17.63%. This indicates strong growth over time, significantly outperforming traditional benchmarks like the S&P 500. However, the maximum drawdown of -32.19% highlights the potential for significant losses during market downturns. While past performance can provide insights, it's crucial to remember that it doesn't guarantee future results. Investors should consider whether they are comfortable with the volatility associated with such high growth.

Projection Info

The Monte Carlo simulation, which uses historical data to project future outcomes, suggests a wide range of potential returns. The median outcome shows a 787.06% increase, while the 5th percentile still offers a 148.92% return. This illustrates the portfolio's potential for both substantial gains and notable risks. However, simulations are based on historical patterns and cannot predict future market conditions with certainty. Investors should weigh these projections against their risk tolerance and investment goals.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly invested in stocks, with a negligible cash position. This heavy stock allocation aligns with a high-risk, high-reward strategy typical of growth-focused portfolios. While equities offer the potential for significant returns, they also expose the portfolio to increased volatility. To enhance diversification, consider adding other asset classes, such as bonds or real estate, which can provide stability during market fluctuations and balance risk exposure.

Sectors Info

  • Technology
    62%
  • Consumer Discretionary
    8%
  • Telecommunications
    7%
  • Financials
    6%
  • Health Care
    6%
  • Industrials
    4%
  • Consumer Staples
    3%
  • Energy
    1%
  • Real Estate
    1%
  • Basic Materials
    1%
  • Utilities
    1%

With 62.2% of the portfolio in the technology sector, there's a substantial concentration risk. While tech stocks have driven significant returns in recent years, they are also prone to volatility, especially during interest rate hikes or regulatory changes. The remaining sectors, including consumer cyclicals and communication services, provide some diversification, but their small allocations limit their impact. To mitigate sector-specific risks, consider redistributing some investments to underrepresented sectors.

Regions Info

  • North America
    99%

The portfolio's geographic allocation is predominantly North American, with 99.5% exposure. This lack of international diversification may leave the portfolio vulnerable to U.S. market fluctuations. While the U.S. has historically been a strong performer, global diversification can offer protection against regional economic downturns. Consider expanding exposure to developed and emerging markets to capture growth opportunities and reduce geographic concentration risk.

Redundant positions Info

  • Technology Select Sector SPDR® Fund
    Vanguard S&P 500 ETF
    Vanguard Growth Index Fund ETF Shares
    High correlation

The portfolio's assets are highly correlated, meaning they tend to move together. This can limit diversification benefits, as similar asset movements can amplify losses during market downturns. The Technology Select Sector SPDR® Fund, Vanguard S&P 500 ETF, and Vanguard Growth Index Fund ETF Shares show significant overlap. Reducing this correlation by introducing assets with different performance drivers could enhance risk management and improve overall portfolio resilience.

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 using the Efficient Frontier, which seeks to achieve the best possible risk-return ratio with the current assets. However, given the high correlation among assets, the first step should be to reduce overlap and enhance diversification. By reallocating investments to less correlated assets, the portfolio could achieve a more efficient balance between risk and return. This optimization is based on adjusting allocations among existing holdings, not introducing new asset classes.

Dividends Info

  • Vanguard S&P 500 ETF 1.30%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Technology Select Sector SPDR® Fund 0.50%
  • Weighted yield (per year) 0.80%

The portfolio's dividend yield is relatively low at 0.8%, reflecting its growth focus. While dividends can provide a steady income stream, growth-focused portfolios often prioritize capital appreciation over income. For investors seeking income, this portfolio may not meet their needs. However, for those focused on long-term growth, the low dividend yield is consistent with the strategy. Consider whether dividend income aligns with your financial goals and adjust allocations accordingly.

Ongoing product costs Info

  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Technology Select Sector SPDR® Fund 0.09%
  • Weighted costs total (per year) 0.06%

The portfolio's costs are impressively low, with an average Total Expense Ratio (TER) of 0.06%. This cost efficiency supports better long-term performance by minimizing fees that can erode returns. Low costs are a significant advantage, especially in a growth-focused portfolio where every percentage point of return counts. Maintaining this low-cost structure is beneficial, but it's also important to ensure that cost savings don't compromise diversification or risk management.

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