High-Risk High-Reward Portfolio with Strong Technology Focus and Limited Geographic Diversification

Report created on Dec 5, 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 predominantly composed of ETFs, with a significant allocation towards growth-oriented large-cap stocks. The Schwab U.S. Large-Cap Growth ETF makes up 40% of the portfolio, followed by the Vanguard S&P 500 ETF at 30%, Vanguard Information Technology Index Fund ETF Shares at 20%, and ProShares UltraPro QQQ at 10%. This composition suggests a strong inclination towards growth and technology sectors. While the allocation supports potential high returns, it also implies higher risk due to concentrated exposure. A more diversified mix could better balance risk and reward.

Growth Info

Historically, this portfolio has shown impressive growth, with a compound annual growth rate (CAGR) of 21.02%. However, it also experienced a significant maximum drawdown of -50.95%, indicating vulnerability during market downturns. The concentrated nature of the portfolio means that a few days account for a large portion of the returns. This performance history highlights the potential for high returns but also underscores the importance of risk management. To mitigate risks, considering a more balanced approach could provide stability without sacrificing too much growth potential.

Projection Info

A Monte Carlo simulation, which uses random sampling to predict future outcomes, was conducted with 1,000 simulations. Assuming a hypothetical initial investment, the projections show a wide range of potential outcomes, from a 5th percentile return of 82.77% to a 67th percentile return of 3,159.29%. With 984 simulations yielding positive returns, the annualized return across all simulations is 30.65%. These projections highlight the portfolio's potential for substantial growth, but also its inherent volatility. A more diversified approach could help manage this volatility while maintaining growth prospects.

Asset classes Info

  • Stocks
    96%
  • Cash
    3%

The portfolio is heavily weighted towards stocks, with 96.15% allocated to equities. Cash accounts for 3.30%, while bonds and other assets make up negligible portions. This stock-heavy allocation aligns with a growth-oriented strategy but lacks the stability and income generation that bonds typically provide. Introducing more fixed-income assets could help cushion against volatility and provide a more balanced risk-reward profile. A diversified asset class mix can enhance the portfolio's resilience in varying market conditions.

Sectors Info

  • Technology
    54%
  • Consumer Discretionary
    9%
  • Telecommunications
    9%
  • Health Care
    8%
  • Financials
    7%
  • Industrials
    4%
  • Consumer Staples
    3%
  • Energy
    1%
  • Basic Materials
    1%
  • Utilities
    1%
  • Real Estate
    1%

The portfolio's sector allocation is dominated by technology at 54.18%, followed by consumer cyclicals at 9.40% and communication services at 9.23%. This heavy concentration in technology suggests a strong belief in the sector's growth potential but also exposes the portfolio to sector-specific risks. A more balanced sector allocation could reduce risk and increase resilience to sector downturns. Diversifying across a broader range of sectors could provide more consistent returns over time and reduce vulnerability to market fluctuations.

Regions Info

  • North America
    99%

Geographically, the portfolio is overwhelmingly focused on North America, accounting for 99.31% of the allocation. This heavy regional concentration limits exposure to potential growth opportunities in other markets and increases vulnerability to regional economic downturns. Expanding geographic diversification could enhance returns and reduce risk by capturing growth in other regions. A more globally diversified portfolio could better withstand regional economic shifts and offer more balanced growth prospects.

Redundant positions Info

  • ProShares UltraPro QQQ
    Vanguard Information Technology Index Fund ETF Shares
    Vanguard S&P 500 ETF
    Schwab U.S. Large-Cap Growth ETF
    High correlation

The assets within the portfolio show high correlation, particularly among ProShares UltraPro QQQ, Vanguard Information Technology Index Fund ETF Shares, Vanguard S&P 500 ETF, and Schwab U.S. Large-Cap Growth ETF. This indicates that these assets tend to move in the same direction, reducing the diversification benefits within the portfolio. Reducing correlated assets and introducing less correlated investments could enhance diversification and mitigate risk. A diversified portfolio with low correlation among assets can provide more stable returns and reduce overall risk.

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, focus on addressing the high correlation among assets, as it limits diversification benefits. Consider reducing overlapping positions to enhance diversification. To achieve a riskier portfolio, increase exposure to growth-oriented assets; for a more conservative approach, add bonds or other fixed-income securities. Moving along the efficient frontier can help balance risk and return according to your preferences. An optimal portfolio aligns with your risk tolerance and financial goals, ensuring a well-rounded investment strategy.

Dividends Info

  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • ProShares UltraPro QQQ 1.10%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 0.75%

The portfolio's dividend yield stands at 0.75%, with contributions from each ETF. While this yield offers some income, it is relatively modest. The focus on growth-oriented ETFs naturally results in lower dividend yields, reflecting a strategy prioritizing capital appreciation over income generation. Investors seeking higher income might consider reallocating a portion towards income-focused investments. Balancing growth and income can provide a more comprehensive return strategy and cater to various financial goals.

Ongoing product costs Info

  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • ProShares UltraPro QQQ 0.88%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.13%

The portfolio's total expense ratio (TER) is quite low at 0.13%, reflecting cost-effective management. However, the ProShares UltraPro QQQ has a higher expense ratio of 0.88%, which could impact overall returns. Keeping investment costs low is crucial for maximizing returns. Regularly reviewing and optimizing cost structures can enhance net returns over time. Investors should ensure that higher-cost investments provide sufficient value to justify their expenses. A focus on cost efficiency can significantly contribute to long-term investment success.

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