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Growth-Focused Portfolio with High Risk and Low Diversification Suitable for Aggressive Investors Seeking Strong Returns

Report created on Jul 2, 2024

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 heavily skewed towards growth-oriented ETFs, with a significant concentration in the Vanguard S&P 500 Growth Index Fund ETF Shares. The portfolio is primarily composed of equity ETFs, with a minor cash position. The heavy allocation to growth and technology sectors indicates a focus on capital appreciation. While this can yield high returns, it also increases the portfolio's volatility and risk. A more balanced approach could improve stability and reduce risk exposure, especially in downturns. Diversifying into other asset classes could help mitigate potential losses and provide a more stable growth trajectory.

Growth Info

Historically, the portfolio has delivered impressive returns, with a compound annual growth rate (CAGR) of 17.44%. This reflects the strong performance of growth and technology stocks over recent years. However, the portfolio has also experienced a significant maximum drawdown of -33.78%, highlighting its vulnerability during market downturns. The concentration in high-growth sectors can lead to substantial gains but also exposes the portfolio to higher volatility. To maintain these returns while reducing risk, consider diversifying across different sectors and asset classes to cushion against potential market corrections.

Projection Info

Using a Monte-Carlo simulation, which models potential future portfolio performance by simulating thousands of possible market scenarios, the portfolio shows promising potential. With a hypothetical initial investment, the simulation indicates a median return of 659.93%, with a high likelihood of positive outcomes. However, the range of potential outcomes is broad, reflecting the portfolio's high-risk nature. While the projected returns are attractive, the volatility suggests that maintaining a long-term investment horizon is crucial. Consider adjusting the portfolio to include more conservative assets to reduce uncertainty and enhance stability in less favorable market conditions.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly concentrated in stocks, with a tiny cash position. This heavy equity allocation can drive substantial growth but also increases risk exposure. The lack of diversification across asset classes means the portfolio is heavily reliant on stock market performance. Including other asset classes like bonds or real estate could provide a buffer against stock market volatility and enhance the portfolio's risk-adjusted returns. Diversifying across asset classes can lead to a more balanced risk-return profile, reducing overall portfolio volatility and potentially smoothing out returns over time.

Sectors Info

  • Technology
    55%
  • Consumer Discretionary
    10%
  • Industrials
    8%
  • Financials
    7%
  • Telecommunications
    6%
  • Energy
    5%
  • Health Care
    4%
  • Consumer Staples
    2%
  • Basic Materials
    2%
  • Real Estate
    1%
  • Utilities
    1%

Sector allocation is heavily weighted towards technology, which comprises over half of the portfolio. While the tech sector has been a strong performer, this concentration increases vulnerability to sector-specific downturns. Other sectors like consumer cyclicals and industrials are also represented but to a much lesser extent. Broadening sector exposure could help mitigate risks associated with sector concentration. Consider reallocating some assets to underrepresented sectors to achieve a more balanced sector distribution. This can help protect the portfolio against sector-specific risks and provide more consistent returns across various market environments.

Regions Info

  • North America
    89%
  • Europe Developed
    1%

The geographic allocation is predominantly focused on North American markets, with minimal exposure to other regions. This concentration can lead to missed opportunities in international markets and increased vulnerability to regional economic downturns. Expanding the geographic diversification to include more exposure to Europe, Asia, and emerging markets could enhance the portfolio's growth potential and reduce regional risk. A more globally diversified portfolio can capture growth opportunities in different regions and provide a hedge against localized economic challenges, potentially leading to more stable and diversified returns.

Redundant positions Info

  • Vanguard Mid-Cap Index Fund ETF Shares
    Invesco S&P MidCap Momentum ETF
    Invesco S&P 500 GARP ETF
    High correlation
  • Vanguard S&P 500 Growth Index Fund ETF Shares
    Vanguard Information Technology Index Fund ETF Shares
    High correlation

The portfolio contains highly correlated assets, particularly among the mid-cap and growth-focused ETFs. This correlation means that these assets tend to move in the same direction, reducing the benefits of diversification. While correlated assets can amplify gains in a rising market, they also increase risk during downturns. To improve diversification, consider incorporating assets with lower correlations, which can provide a stabilizing effect on the portfolio. By reducing asset correlation, the portfolio can achieve a more balanced risk-return profile, potentially smoothing out returns and improving 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.

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The current portfolio is not on the efficient frontier due to its high correlation among assets, which limits diversification benefits. The efficient frontier represents the set of optimal portfolios offering the highest expected return for a defined level of risk. To move closer to the efficient frontier, consider reducing asset correlations by incorporating assets with differing performance drivers. This can enhance the portfolio's risk-adjusted returns and potentially provide a more stable performance. While the portfolio is growth-focused, balancing growth with diversification can lead to a more optimized and resilient investment strategy.

Dividends Info

  • Invesco S&P 500 GARP ETF 1.30%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard Mid-Cap Index Fund ETF Shares 1.40%
  • Vanguard S&P 500 Growth Index Fund ETF Shares 0.60%
  • Invesco S&P MidCap Momentum ETF 0.30%
  • Weighted yield (per year) 0.71%

The portfolio's dividend yield is relatively low at 0.71%, reflecting its focus on growth-oriented assets. While dividends can provide a steady income stream, the portfolio prioritizes capital appreciation over income generation. For investors seeking higher income, incorporating dividend-focused assets could enhance the portfolio's yield. However, given the growth focus, maintaining a balance between income and growth is essential. Adjusting the portfolio to include a mix of growth and income-generating assets can provide a more comprehensive approach, catering to both capital appreciation and income needs.

Ongoing product costs Info

  • Invesco S&P 500 GARP ETF 0.34%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard Mid-Cap Index Fund ETF Shares 0.04%
  • Vanguard S&P 500 Growth Index Fund ETF Shares 0.10%
  • Invesco S&P MidCap Momentum ETF 0.34%
  • Weighted costs total (per year) 0.16%

The portfolio's total expense ratio (TER) is a modest 0.16%, which is competitive and helps maximize net returns. Low costs are beneficial as they allow more of the portfolio's returns to be retained by the investor. However, it's essential to continuously monitor and manage these costs to ensure they remain low. Consider evaluating other potential investment options that offer similar exposure with even lower costs. Keeping investment costs low is a crucial aspect of optimizing portfolio performance, as fees can significantly impact long-term returns, especially in a high-growth portfolio.

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