Concentrated growth-focused portfolio with heavy reliance on US large-cap equities

Report created on Jan 13, 2025

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 concentrated in two ETFs, with 90% in the Vanguard S&P 500 ETF and 10% in the Invesco QQQ Trust. Such concentration can lead to higher risk due to limited diversification. Typically, a balanced portfolio would include a wider range of asset classes and regions to mitigate risk. While this composition can benefit from the growth of large-cap US equities, it lacks exposure to other asset classes like bonds or international stocks, which could provide stability during market downturns.

Growth Info

Historically, the portfolio has delivered a strong Compound Annual Growth Rate (CAGR) of 14.57%, reflecting the robust performance of US large-cap stocks. However, it also experienced a maximum drawdown of -33.21%, indicating significant volatility during market downturns. This pattern is typical for growth-focused portfolios, which can outperform in bull markets but suffer in bear markets. Investors should be prepared for such fluctuations and consider diversifying to reduce volatility while maintaining growth potential.

Projection Info

The Monte Carlo simulation, which uses historical data to project future outcomes, suggests a wide range of potential returns. The median outcome projects a 749.44% increase, but the 5th percentile shows a much lower 131.31% increase, indicating a risk of underperformance. While simulations offer valuable insights, they rely on past data, which may not predict future market conditions. Investors should use these projections as one of several tools in decision-making and consider diversifying to manage risk.

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 does not provide the diversification benefits that bonds or other asset classes might offer. Typically, a balanced portfolio would include a mix of stocks and bonds to reduce risk. Introducing a small percentage of bonds or alternative assets could help stabilize returns during volatile periods without sacrificing growth potential.

Sectors Info

  • Technology
    35%
  • Financials
    12%
  • Consumer Discretionary
    11%
  • Health Care
    11%
  • Telecommunications
    10%
  • Industrials
    7%
  • Consumer Staples
    6%
  • Energy
    3%
  • Utilities
    3%
  • Real Estate
    2%
  • Basic Materials
    2%

The portfolio has a significant concentration in the technology sector, comprising 34.83% of holdings. This exposure can drive growth, especially in tech booms, but also increases vulnerability to sector-specific downturns. Other sectors like financial services and healthcare are present but less dominant. A more balanced sector allocation could mitigate risks associated with sector volatility. Investors might consider diversifying into underrepresented sectors to enhance stability and capture broader market trends.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

With 99.24% of assets in North America, the portfolio is heavily skewed towards the US market. This geographic concentration can limit exposure to global growth opportunities and increase vulnerability to US-specific economic downturns. A more geographically diverse portfolio could offer protection against regional risks and tap into emerging market growth. Investors might explore adding international equities to achieve a more balanced global presence and reduce dependence on the US market.

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.

The portfolio's risk-return profile could be optimized using the Efficient Frontier, focusing on maximizing returns for a given level of risk. Adjusting allocations between the existing ETFs or introducing new assets can achieve a more optimal balance. While this approach does not guarantee diversification, it enhances the portfolio's efficiency by improving the risk-return ratio. Investors should periodically review allocations to ensure alignment with their risk tolerance and financial objectives.

Dividends Info

  • Invesco QQQ Trust 0.60%
  • Vanguard S&P 500 ETF 1.30%
  • Weighted yield (per year) 1.23%

The portfolio's total dividend yield stands at 1.23%, primarily driven by the Vanguard S&P 500 ETF's yield of 1.3%. While dividends provide a steady income stream, this yield is relatively modest and aligns with a growth-oriented strategy. Investors seeking higher income might consider increasing exposure to dividend-focused funds or stocks. However, maintaining a balance between growth and income is crucial to achieving long-term financial goals.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.05%

The portfolio's total expense ratio (TER) is impressively low at 0.05%, thanks to the Vanguard S&P 500 ETF's cost efficiency. Low costs enhance long-term returns by minimizing fees that can erode gains. This cost structure is a significant advantage and aligns with best practices for passive investing. Investors should continue to monitor fund expenses and consider low-cost alternatives when rebalancing or adding new investments to maintain cost efficiency.

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