High-Risk Growth Portfolio with Low Diversification and Strong Technology Focus for Aggressive Investors

Report created on Jun 14, 2024

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.

Positions

The portfolio is heavily concentrated with three major ETFs: Invesco NASDAQ 100, Vanguard S&P 500, and Vanguard Total Stock Market Index, each making up 33% of the portfolio. These ETFs provide broad exposure to large-cap U.S. stocks, but the lack of diversity is evident with a single small position in Faraday Future Intelligent Electric Inc. at 1%. This composition suggests a strong focus on growth, with limited exposure to other asset classes or diversification strategies. To improve balance, consider adding more varied asset classes and individual stocks across different sectors.

Growth Info

Historically, the portfolio has performed well with a compound annual growth rate (CAGR) of 15.14%, indicating strong returns over time. However, the maximum drawdown of -28.38% reflects significant volatility, which could be concerning for risk-averse investors. The fact that just 19 days account for 90% of returns highlights the portfolio's dependence on short-term market movements. To mitigate risk, maintaining a diversified portfolio with a mix of growth and value stocks could stabilize returns and reduce reliance on market timing.

Projection Info

The Monte Carlo simulation, which uses random sampling to project future outcomes, shows a concerning outlook with negative returns in almost all scenarios. With an annualized return of -26.02% and only two simulations showing positive returns, this indicates potential high risk in future performance. This projection underscores the importance of reassessing current holdings and considering diversification to improve long-term stability and reduce downside risk. Balancing growth-focused investments with more conservative options could enhance the portfolio's resilience.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly allocated to stocks, with 99.89% in equities and a negligible cash position. This heavy stock concentration aligns with a growth-oriented strategy but exposes the portfolio to market volatility. A more balanced approach, incorporating bonds or other fixed-income assets, could help manage risk and provide stability during market downturns. For those seeking a more conservative stance, a strategic shift towards a mix of asset classes may be beneficial, allowing for smoother returns over different market cycles.

Sectors Info

  • Technology
    38%
  • Consumer Discretionary
    12%
  • Telecommunications
    11%
  • Health Care
    9%
  • Financials
    9%
  • Industrials
    7%
  • Consumer Staples
    6%
  • Energy
    2%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    2%

The sector allocation is dominated by technology at 37.90%, followed by consumer cyclicals and communication services. This concentration in tech reflects a bet on high-growth industries but also increases vulnerability to sector-specific downturns. While it's beneficial to capitalize on tech's growth potential, spreading investments across a broader range of sectors could mitigate risks. Introducing a more balanced sector distribution can help cushion the portfolio against fluctuations in any single industry, providing a more stable growth trajectory.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is heavily skewed towards North America, accounting for 98.84% of the allocation. This lack of international exposure may limit growth opportunities and increase vulnerability to regional economic downturns. Diversifying into emerging markets or developed economies outside North America could provide access to different growth drivers and reduce geographic concentration risks. A more globally diversified approach can offer exposure to a wider range of economic conditions and enhance the portfolio's resilience.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Vanguard S&P 500 ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio exhibits high correlation among its major holdings, particularly the three ETFs, which move in tandem due to their similar market focus. This lack of diversification in asset movement reduces the potential benefits of a mixed portfolio, as all assets are likely to react similarly to market events. To improve diversification, consider incorporating assets with low correlation to existing holdings, such as different asset classes or sectors. This strategy can help reduce volatility 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, it's crucial to address the high correlation among current holdings. Reducing overlapping assets can enhance diversification benefits. Once this is achieved, the portfolio can be optimized along the efficient frontier to balance risk and return. Moving towards a riskier portfolio involves increasing exposure to high-growth assets, while a conservative approach would involve adding more fixed-income securities. It's essential to align these adjustments with personal risk tolerance and financial goals for optimal results.

Dividends Info

  • Invesco NASDAQ 100 ETF 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 1.02%

The portfolio's dividend yield stands at 1.02%, with contributions from the three main ETFs. While this yield offers a modest income stream, it's below average for income-focused portfolios. Investors seeking higher income might consider adding dividend-focused stocks or funds to increase yield. However, given the growth orientation, maintaining a balance between growth and income is key. A diversified income strategy could enhance overall returns while providing a buffer against market volatility.

Ongoing product costs Info

  • Invesco NASDAQ 100 ETF 0.15%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.07%

The total expense ratio (TER) for the portfolio is a low 0.07%, thanks to the cost-effective nature of the ETFs. This low-cost structure is a positive aspect, as it helps maximize net returns by minimizing the drag of fees. Keeping investment costs low is crucial for long-term growth, and this portfolio does well in that regard. Continuing to prioritize low-cost investment vehicles can help maintain this advantage, allowing for more capital to be reinvested and compounding over time.

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