Growth-Oriented Portfolio with High Risk and Low Diversification Needs Strategic Rebalancing

Report created on Dec 2, 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 skewed towards ETFs and common stocks, with a significant concentration in technology-related assets. Invesco QQQ Trust and Vanguard Russell 1000 Growth Index Fund ETF Shares form a substantial part of the portfolio, indicating a strong focus on growth. This composition suggests a preference for capital appreciation over income generation. While the heavy reliance on a few ETFs and stocks can drive growth, it also introduces higher risk due to low diversification. To optimize the portfolio, consider diversifying into other asset classes such as bonds or real estate to balance risk and return.

Growth Info

Historically, the portfolio has delivered a commendable compound annual growth rate of 11.46%. However, it's important to note the significant max drawdown of nearly 39%, indicating vulnerability to market downturns. The fact that just a few days account for the majority of returns highlights the portfolio's reliance on volatile market movements. While the historic performance shows potential for high returns, it also underscores the risk of substantial losses. It would be prudent to consider strategies to mitigate such drawdowns, possibly by introducing more stable, income-generating assets.

Projection Info

Using a Monte Carlo simulation, we projected the portfolio's potential future performance based on a hypothetical initial investment. The simulation, which ran 1,000 scenarios, suggests an annualized return of 4.3%. However, there's a wide range of possible outcomes, with the 5th percentile showing a dramatic loss and the 67th percentile indicating moderate gains. This underscores the uncertainty and risk associated with the current portfolio setup. To improve the probability of achieving more consistent returns, consider rebalancing to include a mix of growth and defensive assets.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with a negligible cash allocation. This heavy stock weighting aligns with a growth-focused strategy but also increases exposure to market volatility. While stocks can offer substantial returns, they also come with higher risk, especially in economic downturns. To reduce portfolio risk, consider allocating a portion to other asset classes, such as bonds, which can provide stability and income. A more balanced asset allocation could help smooth returns over time and protect against significant market swings.

Sectors Info

  • Technology
    47%
  • Telecommunications
    16%
  • Consumer Discretionary
    13%
  • Industrials
    7%
  • Financials
    6%
  • Consumer Staples
    6%
  • Health Care
    3%
  • Utilities
    1%
  • Basic Materials
    1%
  • Energy
    1%

Technology dominates the sector allocation, with nearly half of the portfolio invested in tech-related assets. Other sectors, such as communication services and consumer cyclicals, also have notable representation. This concentration in a few sectors indicates a high exposure to sector-specific risks, which could impact performance if these sectors underperform. To mitigate sector risk, consider diversifying into underrepresented sectors like healthcare or utilities. A more balanced sector allocation can enhance the portfolio's resilience to sector-specific downturns and provide more consistent returns.

Regions Info

  • North America
    97%
  • Europe Developed
    1%

The portfolio is overwhelmingly concentrated in North American assets, with minimal exposure to other regions. This geographic focus can limit opportunities for growth and diversification, especially if the North American market faces challenges. While regional concentration can benefit from strong local market performance, it also exposes the portfolio to regional economic and political risks. To enhance diversification, consider increasing exposure to international markets, which can offer growth potential and reduce reliance on a single economic region.

Redundant positions Info

  • Invesco QQQ Trust
    SPDR S&P 500 ETF Trust
    Vanguard Russell 1000 Growth Index Fund ETF Shares
    High correlation

Several assets within the portfolio are highly correlated, particularly the Invesco QQQ Trust, SPDR S&P 500 ETF Trust, and Vanguard Russell 1000 Growth Index Fund ETF Shares. This high correlation indicates that these assets tend to move in the same direction, offering limited diversification benefits. While these assets can amplify gains in rising markets, they also increase the risk of simultaneous losses during downturns. To improve diversification, consider reducing exposure to highly correlated assets and including those with lower correlation, which can help stabilize returns.

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.

Before optimizing, focus on reducing overlapping assets that don't add diversification. The portfolio can be made more efficient by reallocating to less correlated assets. Moving along the efficient frontier, one can achieve a riskier portfolio with higher expected returns or a more conservative one with lower risk. The current portfolio's expected return is below the optimal portfolio's potential, indicating room for improvement. By addressing correlation and sector concentration, the portfolio can become more resilient and aligned with desired risk levels.

Dividends Info

  • Apple Inc 0.40%
  • Fidelity® MSCI Industrials Index ETF 1.20%
  • iShares Global Clean Energy ETF 1.80%
  • iShares Cybersecurity and Tech ETF 0.10%
  • Magna International Inc 4.20%
  • Invesco QQQ Trust 0.60%
  • Defiance Quantum 0.70%
  • Invesco PHLX Semiconductor ETF 0.70%
  • SPDR S&P 500 ETF Trust 1.20%
  • Target Corporation 2.60%
  • Vanguard Russell 1000 Growth Index Fund ETF Shares 0.60%
  • Consumer Staples Select Sector SPDR® Fund 2.50%
  • Weighted yield (per year) 0.63%

The portfolio's dividend yield is relatively low, with a total yield of 0.63%. While some individual assets, like Magna International Inc and Target Corporation, offer higher yields, the overall focus is clearly on growth rather than income. This low yield may not suit investors seeking regular income. To enhance income potential, consider including more dividend-paying stocks or income-focused ETFs. This can provide a steady cash flow and reduce reliance on capital gains, which can be volatile.

Ongoing product costs Info

  • Fidelity® MSCI Industrials Index ETF 0.08%
  • iShares Global Clean Energy ETF 0.41%
  • iShares Cybersecurity and Tech ETF 0.47%
  • U.S. Global Jets ETF 0.60%
  • Invesco QQQ Trust 0.20%
  • Defiance Quantum 0.40%
  • Invesco PHLX Semiconductor ETF 0.19%
  • SPDR S&P 500 ETF Trust 0.10%
  • Vanguard Russell 1000 Growth Index Fund ETF Shares 0.08%
  • Consumer Staples Select Sector SPDR® Fund 0.09%
  • Weighted costs total (per year) 0.11%

The portfolio's total expense ratio is reasonably low at 0.11%, which is beneficial for long-term growth by minimizing costs. Most ETFs in the portfolio have competitive expense ratios, with Fidelity® MSCI Industrials Index ETF and Vanguard Russell 1000 Growth Index Fund ETF Shares being particularly cost-effective. Keeping investment costs low is crucial for maximizing net returns. While the cost structure is favorable, always be mindful of fees when making changes to the portfolio. Consider maintaining this cost-effective approach while seeking opportunities to enhance diversification and reduce risk.

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