High Risk Low Diversity Portfolio with Strong Tech Focus and Overlapping Asset Allocation

Report created on Dec 3, 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 comprised of four ETFs, each holding an equal share of 25%. This results in a concentrated investment with a low diversification score of 2 out of 5. The portfolio's composition leans heavily towards large-cap U.S. equities, particularly in the technology sector. While this setup can lead to significant growth, it also implies a higher risk profile. To enhance diversification, consider including assets that provide exposure to different market segments or asset classes. This could potentially reduce risk and improve the overall balance of the portfolio.

Growth Info

Historically, the portfolio has performed impressively with a CAGR of 16.25%. However, it has also experienced a substantial max drawdown of -31.43%, indicating vulnerability during market downturns. The performance is driven by a concentrated allocation in large-cap growth stocks, which have benefited from recent market trends. While the returns are attractive, the high volatility suggests that investors should be prepared for significant fluctuations. To mitigate this, a more diversified approach could be considered, potentially smoothing out returns over the long term.

Projection Info

Using a Monte Carlo simulation with 1,000 scenarios, the portfolio shows a promising forward projection. The median outcome suggests a 723.85% increase from the hypothetical initial investment, with 998 simulations yielding positive returns. Monte Carlo simulations provide a range of potential outcomes, helping to understand the risks and rewards involved. While the outlook is optimistic, the high concentration in correlated assets means the portfolio could be susceptible to sector-specific downturns. Introducing more diverse asset classes could help manage risk and provide more stable returns.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily skewed towards stocks, with 99.89% in equities and a minimal cash allocation of 0.11%. This single asset class focus aligns with a growth-oriented strategy but increases exposure to market volatility. A more balanced approach might include bonds or alternative investments, which can offer stability and reduce overall risk. By diversifying across different asset classes, investors can potentially achieve a more resilient portfolio that performs well under varying market conditions.

Sectors Info

  • Technology
    43%
  • Consumer Discretionary
    13%
  • Telecommunications
    12%
  • Health Care
    8%
  • Financials
    8%
  • Consumer Staples
    5%
  • Industrials
    5%
  • Energy
    2%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    1%

The sector allocation is dominated by technology at 42.79%, followed by consumer cyclicals and communication services. This concentration in tech stocks has driven past performance but also heightens risk if the sector underperforms. The portfolio lacks significant exposure to sectors like energy, utilities, and real estate, which can provide counterbalance during market shifts. Broadening the sector exposure could help cushion the impact of sector-specific downturns and contribute to a more robust portfolio.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly invested in North America, with 99.1% allocation. This regional focus limits exposure to international markets that could offer growth opportunities and diversification benefits. While the U.S. market has been strong, adding international equities could hedge against domestic market volatility and tap into potential growth in emerging markets. A more global approach might enhance the portfolio's resilience and long-term growth prospects.

Redundant positions Info

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

The assets in the portfolio are highly correlated, particularly the Invesco QQQ Trust and Vanguard Mega Cap Growth Index Fund ETF Shares. This correlation suggests that the portfolio may not be benefiting from diversification, as these assets often move in the same direction. Reducing correlation can help manage risk by ensuring that not all assets are affected similarly by market events. Consider incorporating less correlated assets to achieve a more balanced portfolio that can weather different market conditions.

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 the portfolio, focus on addressing the high correlation among assets. Reducing overlap can enhance diversification and risk management. Once this is achieved, explore moving along the efficient frontier to adjust the risk-return profile. To increase risk, consider adding more growth-oriented assets. For a conservative approach, incorporate bonds or defensive equities. This strategic reallocation can help achieve a portfolio that aligns with the desired risk tolerance and investment goals.

Dividends Info

  • Vanguard Mega Cap Growth Index Fund ETF Shares 0.40%
  • Invesco QQQ Trust 0.60%
  • SPDR S&P 500 ETF Trust 1.20%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 0.85%

The portfolio's dividend yield is relatively low at 0.85%, largely due to its growth-focused nature. While dividends are not the primary goal, they can provide a steady income stream and a buffer during market downturns. To increase dividend income, consider adding higher-yielding stocks or dividend-focused funds. This could enhance portfolio stability and provide a more consistent return, especially in times of market volatility or when growth stocks face challenges.

Ongoing product costs Info

  • Vanguard Mega Cap Growth Index Fund ETF Shares 0.07%
  • Invesco QQQ Trust 0.20%
  • SPDR S&P 500 ETF Trust 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.10%

The portfolio's total expense ratio (TER) is 0.1%, which is quite low and favorable for long-term returns. Low costs are beneficial as they minimize the drag on performance, allowing more of the returns to compound over time. Maintaining a focus on cost-efficiency is crucial, as it directly impacts the net returns of the portfolio. Continuing to prioritize low-cost investment options will help optimize performance and ensure that the portfolio remains cost-effective in the long run.

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