Growth-Focused Portfolio with High Risk and Low Diversification Primarily in North American Technology Stocks

Risk profile

  • Secure
    Speculative

The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.

Diversification profile

  • Focused
    Diversified

The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.

What type of investor this portfolio is suitable for

Growth Investors

This portfolio is suitable for investors with a high risk tolerance and a focus on capital appreciation. These individuals are likely to have a long-term investment horizon, allowing them to ride out market volatility in pursuit of higher returns. Growth-oriented investors are often willing to accept significant fluctuations in portfolio value for the potential of substantial gains. They may prioritize wealth accumulation over income generation, making this portfolio a good fit for those seeking aggressive growth strategies.

Positions

  • Vanguard Growth Index Fund ETF Shares
    VUG - US9229087369
    40.00%
  • Vanguard S&P 500 Growth Index Fund ETF Shares
    VOOG - US9219325050
    30.00%
  • Schwab U.S. Large-Cap Growth ETF
    SCHG - US8085243009
    20.00%
  • Vanguard Russell 1000 Growth Index Fund ETF Shares
    VONG - US92206C6802
    10.00%

The portfolio is composed entirely of ETFs, with a strong focus on growth stocks. Vanguard Growth Index Fund ETF Shares makes up 40% of the portfolio, followed by Vanguard S&P 500 Growth Index Fund ETF Shares at 30%. Schwab U.S. Large-Cap Growth ETF holds 20%, and Vanguard Russell 1000 Growth Index Fund ETF Shares rounds it out with 10%. This composition reflects a heavy leaning towards growth-oriented investments, which can lead to higher returns but also increased risk. The lack of diversification across different asset classes may expose the portfolio to significant market volatility.

Growth

Historically, the portfolio has delivered a strong compound annual growth rate (CAGR) of 16.72%, demonstrating its potential for high returns. However, it has also experienced a maximum drawdown of -34.18%, indicating vulnerability during market downturns. The fact that 90% of returns are concentrated in just 35 days highlights the portfolio's reliance on a few key performance periods. This suggests that while the portfolio can perform well, it is also susceptible to significant fluctuations, which might not suit all investors.

Projection

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was analyzed. The simulation provides a range of possible outcomes for a hypothetical initial investment. The median (50th percentile) projection indicates a potential growth of 762.17%, while the 5th percentile suggests a more conservative 144.93% growth. Although the simulation shows a high probability of positive returns, with 998 out of 1,000 simulations yielding gains, the variability in outcomes underscores the portfolio's inherent risk.

Asset classes

  • Stocks
    100%
  • Cash
    0%

The portfolio is heavily weighted towards stocks, with 99.91% allocated to equities and a negligible 0.09% in cash. This single asset class focus aligns with the growth profile of the portfolio, aiming for capital appreciation. However, the absence of bonds or other fixed-income investments means there is no buffer against market volatility. To reduce risk, consider diversifying across different asset classes. Including bonds or other defensive assets could provide stability and reduce the impact of market fluctuations on the portfolio.

Sectors

  • Technology
    50%
  • Consumer Discretionary
    14%
  • Telecommunications
    13%
  • Health Care
    8%
  • Financials
    6%
  • Industrials
    4%
  • Consumer Staples
    2%
  • Basic Materials
    1%
  • Real Estate
    1%
  • Energy
    1%
  • Utilities
    0%

The sector allocation reveals a strong bias towards technology, which constitutes nearly 50% of the portfolio. Consumer cyclicals and communication services also have significant allocations. While this sector focus can drive growth during bullish market conditions, it also increases vulnerability to sector-specific downturns. A more balanced sector allocation could mitigate risk and enhance stability. Diversifying into sectors like healthcare or financials can provide a cushion against sector-specific risks and contribute to a more resilient portfolio.

Regions

  • North America
    100%
  • Europe Developed
    0%
  • Asia Developed
    0%
  • Latin America
    0%

Geographically, the portfolio is overwhelmingly concentrated in North America, with 99.84% of assets allocated to this region. Minimal exposure to Europe, Asia, and Latin America suggests limited geographic diversification. This regional concentration may limit the portfolio's ability to capitalize on global growth opportunities and increase its susceptibility to North American market downturns. To enhance geographic diversification, consider allocating a portion of the portfolio to international markets, which can provide exposure to different economic cycles and growth potential.

Redundant positions

  • Vanguard S&P 500 Growth Index Fund ETF Shares
    Vanguard Growth Index Fund ETF Shares
    Schwab U.S. Large-Cap Growth ETF
    Vanguard Russell 1000 Growth Index Fund ETF Shares
    High correlation

The portfolio exhibits high correlations among its holdings, with all ETFs moving in similar directions historically. This lack of diversification means that the portfolio may not benefit from the risk-reducing effects of holding uncorrelated assets. When one asset underperforms, others in the portfolio are likely to do the same, amplifying potential losses. To reduce correlation, consider adding assets that behave differently under varying market conditions. This could help stabilize the portfolio and enhance its risk-adjusted returns.

Dividends

  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard Russell 1000 Growth Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 Growth Index Fund ETF Shares 0.60%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Weighted yield (per year) 0.52%

The portfolio's dividend yield is relatively low at 0.52%, reflecting its focus on growth rather than income generation. While growth stocks typically reinvest earnings to fuel expansion, this approach may not suit investors seeking regular income. If generating passive income is a priority, consider incorporating dividend-paying stocks or ETFs into the portfolio. These can provide a steady income stream and potentially offset some of the volatility associated with growth-oriented investments.

Ongoing product costs

  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Vanguard Russell 1000 Growth Index Fund ETF Shares 0.08%
  • Vanguard S&P 500 Growth Index Fund ETF Shares 0.10%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Weighted costs total (per year) 0.06%

The total expense ratio (TER) of the portfolio is 0.06%, which is impressively low. This cost efficiency is beneficial for long-term investment performance, as lower expenses mean more of the portfolio's returns are retained. Keeping investment costs low is a key principle for maximizing returns over time. However, it's essential to balance cost considerations with diversification and risk management. While low costs are advantageous, they should not come at the expense of a well-rounded and diversified portfolio.

Risk vs. return

This chart displays the Efficient Frontier, showing the best balance between risk and return for your portfolio based on historical data. It calculates the most efficient asset allocations. If your portfolio is below the curve, it can be optimized for higher returns or lower risk. Portfolios on the curve are the most efficient.

Before optimizing the portfolio, it's crucial to address the high correlation among assets. Reducing overlap can enhance diversification and potentially improve risk-adjusted returns. The efficient frontier suggests that the portfolio can achieve a similar risk level with a higher expected return of 17.32%. To achieve a riskier portfolio, one might increase exposure to high-growth sectors, while a more conservative approach could involve adding bonds or defensive equities. Optimizing along the efficient frontier can help align the portfolio with desired risk and return objectives.

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