Risky Growth Portfolio with High Correlation and Limited Diversification Needs Optimization for Better Returns

Report created on Dec 3, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

1/5
Single-Focused
Less diversification More diversification

Positions

The portfolio is heavily concentrated in ETFs, with a significant 45% allocation in the Vanguard S&P 500 ETF. Leveraged ETFs like ProShares Ultra QQQ and ProShares UltraPro QQQ make up a combined 30%. A smaller portion is allocated to Berkshire Hathaway Inc, SPDR Gold Shares, and other sector-specific ETFs. This composition indicates a strong focus on growth and a higher risk appetite. However, the lack of diversification could expose the portfolio to higher volatility. It's crucial to consider balancing the portfolio to reduce risk while maintaining growth potential.

Growth Info

Historically, this portfolio has shown impressive performance with a compound annual growth rate of 22.84%. However, the max drawdown of -57.81% highlights the potential risks associated with such a high-growth strategy. The portfolio's returns are driven by a small number of days, suggesting a volatile performance pattern. This historical data underscores the need for a more balanced approach to manage risk while still capturing growth opportunities. Investors should be prepared for significant fluctuations and consider strategies to mitigate potential losses.

Projection Info

Using a Monte Carlo simulation with 1,000 scenarios, the portfolio shows a wide range of potential outcomes. With a hypothetical initial investment, the 5th percentile projects a modest 3.65% return, while the 67th percentile shows an impressive 1,965.36% return. The simulation highlights the portfolio's potential for high returns but also significant risk. An annualized return of 26.35% across simulations suggests strong growth prospects. However, investors should be cautious and consider diversifying to reduce the likelihood of adverse outcomes.

Asset classes Info

  • Stocks
    87%
  • Other
    7%
  • Cash
    6%

The portfolio's asset class allocation is heavily skewed towards stocks, making up 87.4% of the portfolio. Other asset classes like cash and bonds are minimally represented. This concentration in equities aligns with a growth-focused strategy but increases exposure to market volatility. A more balanced allocation could help mitigate risk and provide more stability during market downturns. Consider introducing more bonds or other asset classes to create a more resilient portfolio.

Sectors Info

  • Technology
    32%
  • Financials
    14%
  • Telecommunications
    10%
  • Consumer Discretionary
    9%
  • Energy
    8%
  • Health Care
    7%
  • Industrials
    5%
  • Consumer Staples
    5%
  • Utilities
    2%
  • Basic Materials
    1%
  • Real Estate
    1%

Technology dominates the sector allocation at 32.14%, followed by Financial Services and Communication Services. While these sectors offer growth potential, the concentration increases risk if these sectors underperform. Other sectors like Energy and Healthcare provide some diversification but are underrepresented. To achieve better risk management, consider spreading investments across a broader range of sectors, reducing dependence on any single sector's performance.

Regions Info

  • North America
    93%
  • Europe Developed
    1%

The portfolio is predominantly focused on North American assets, which account for 92.97% of the allocation. This geographic concentration exposes the portfolio to regional market risks. Although North America has been a strong performer, diversifying into other regions could provide additional growth opportunities and reduce risk. Consider exploring investments in emerging markets or developed regions outside North America to enhance geographic diversification.

Redundant positions Info

  • ProShares Ultra QQQ
    ProShares UltraPro QQQ
    High correlation
  • Direxion Daily S&P500® Bull 3X Shares
    Vanguard S&P 500 ETF
    High correlation

The portfolio contains highly correlated assets, such as ProShares Ultra QQQ and ProShares UltraPro QQQ, as well as Direxion Daily S&P500 Bull 3X Shares and Vanguard S&P 500 ETF. These correlations indicate a lack of diversification, which can amplify risk during market downturns. To improve diversification, consider reducing exposure to overlapping assets and introducing investments with lower correlations. This could enhance the portfolio's resilience and improve risk-adjusted 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, addressing the portfolio's high correlation and limited diversification is crucial. Reducing exposure to overlapping assets can enhance diversification benefits. Moving along the efficient frontier can help achieve a more conservative or riskier portfolio, depending on the investor's goals. By balancing risk and return, investors can optimize their portfolio for better performance. However, focusing on diversification should be the first step to create a more robust and resilient investment strategy.

Dividends Info

  • ProShares Ultra QQQ 0.30%
  • Direxion Daily S&P500® Bull 3X Shares 0.70%
  • ProShares UltraPro QQQ 1.20%
  • Vanguard S&P 500 ETF 1.20%
  • Energy Select Sector SPDR® Fund 3.20%
  • Weighted yield (per year) 0.95%

The portfolio's dividend yield is relatively low at 0.95%, reflecting its growth-oriented nature. While some holdings like the Energy Select Sector SPDR Fund offer higher yields, the overall focus is on capital appreciation rather than income generation. Investors seeking regular income might consider increasing exposure to dividend-paying assets. Balancing growth and income can provide a more stable return profile and reduce reliance on market appreciation alone.

Ongoing product costs Info

  • SPDR® Gold Shares 0.40%
  • ProShares Ultra QQQ 0.95%
  • Direxion Daily S&P500® Bull 3X Shares 0.91%
  • ProShares UltraPro QQQ 0.88%
  • Vanguard S&P 500 ETF 0.03%
  • Energy Select Sector SPDR® Fund 0.09%
  • Weighted costs total (per year) 0.38%

The portfolio's total expense ratio is 0.38%, with the Vanguard S&P 500 ETF contributing the lowest cost at 0.03%. Higher costs are associated with leveraged ETFs like ProShares Ultra QQQ and Direxion Daily S&P500 Bull 3X Shares. While the overall costs are moderate, minimizing expenses can enhance net returns. Consider evaluating the cost-effectiveness of each investment and exploring lower-cost alternatives to maximize portfolio efficiency.

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