A tech-heavy growth-focused portfolio with low diversification and high risk exposure

Report created on Dec 29, 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 heavily weighted towards two ETFs, the Vanguard S&P 500 ETF and the Vanguard Growth Index Fund ETF Shares, accounting for nearly 80% of the total allocation. The remaining allocation is concentrated in technology stocks, specifically NVIDIA and Advanced Micro Devices. This composition indicates a strong focus on growth, but the lack of diversification could expose the portfolio to sector-specific risks. Diversifying across different asset types and sectors could reduce risk and improve stability.

Growth Info

Historically, the portfolio has shown impressive growth, with a Compound Annual Growth Rate (CAGR) of 25.58%. However, it has also experienced significant volatility, evidenced by a maximum drawdown of -60.66%. This highlights the potential for substantial gains but also considerable losses. Comparing this to a benchmark like the S&P 500, which has a lower long-term CAGR, indicates that while the growth is strong, the risk is also elevated. Balancing the portfolio to mitigate such volatility could be beneficial.

Projection Info

Monte Carlo simulations, which use historical data to forecast potential future outcomes, suggest a wide range of possible returns. With a median projection of 8,674.6% and a high annualized return across simulations, the portfolio shows potential for significant growth. However, it's crucial to remember that these projections are based on past data and don't guarantee future results. To better manage potential outcomes, consider diversifying the asset base to stabilize returns across varying market conditions.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely invested in stocks, with a negligible allocation to cash. This heavy stock allocation aligns with a growth-oriented strategy but limits diversification. By comparison, a more balanced portfolio might include bonds or other asset classes to hedge against stock market volatility. Introducing a mix of asset classes could provide more stability and reduce risk, especially during market downturns when stocks tend to be more volatile.

Sectors Info

  • Technology
    52%
  • Consumer Discretionary
    10%
  • Telecommunications
    9%
  • Financials
    8%
  • Health Care
    7%
  • Industrials
    5%
  • Consumer Staples
    3%
  • Energy
    2%
  • Real Estate
    2%
  • Basic Materials
    1%
  • Utilities
    1%

The portfolio is predominantly invested in the technology sector, making up over half of the total allocation. While tech stocks have driven substantial growth, they can also be highly volatile, especially during periods of regulatory scrutiny or interest rate hikes. This concentration could lead to significant fluctuations in portfolio value. To mitigate sector-specific risks, consider diversifying into other sectors such as healthcare or consumer staples, which may offer more stability.

Regions Info

  • North America
    100%

Geographically, the portfolio is almost exclusively invested in North America, with minimal exposure to Europe and Asia. This concentration can limit the benefits of global diversification and expose the portfolio to regional economic risks. Comparing to a global benchmark, which usually includes broader geographic exposure, suggests that adding international investments could enhance diversification and reduce risk associated with any single region's economic performance.

Redundant positions Info

  • Vanguard Growth Index Fund ETF Shares
    Vanguard S&P 500 ETF
    High correlation

The portfolio contains highly correlated assets, particularly between the Vanguard S&P 500 ETF and the Vanguard Growth Index Fund ETF Shares. This high correlation means that these assets tend to move in the same direction, limiting diversification benefits. During market downturns, this could result in amplified losses. To optimize risk management, consider replacing one of these ETFs with an asset that has a lower correlation to the rest of the portfolio.

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.

While the portfolio is heavily growth-focused, it could benefit from optimization using the Efficient Frontier, which seeks the best possible risk-return ratio. Currently, the high correlation between assets limits diversification benefits. By reallocating within the existing assets or introducing new ones with lower correlation, the portfolio could achieve better efficiency. This doesn't necessarily mean adding more assets but rather adjusting the current allocation to enhance risk management.

Dividends Info

  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Growth Index Fund ETF Shares 0.40%
  • Weighted yield (per year) 0.69%

The portfolio's dividend yield is relatively low at 0.69%, with the Vanguard S&P 500 ETF providing a modest contribution of 1.2%. For growth-focused portfolios, dividends may not be a primary concern, but they can offer a buffer during market volatility. If income generation is a goal, consider adding higher-yielding assets to balance growth with income. However, ensure that any new additions align with the overall risk tolerance and investment strategy.

Ongoing product costs Info

  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Weighted costs total (per year) 0.03%

The portfolio benefits from impressively low costs, with a total expense ratio (TER) of 0.03%. This cost efficiency supports better long-term performance by minimizing the drag on returns. Low-cost investing is a key principle for maximizing net gains over time. Maintaining this focus on low costs while potentially diversifying the portfolio can help sustain strong performance. It's important to regularly review and ensure that any new investments also maintain this cost advantage.

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