High-risk growth-focused portfolio with limited diversification and significant tech sector exposure

Report created on Jan 6, 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 weighted towards U.S. large-cap equity ETFs, with a significant focus on growth-oriented funds. Notably, 60% of the portfolio is concentrated in two ETFs: SPDR S&P 500 and Schwab U.S. Large-Cap Growth. While this structure supports growth, it lacks diversification, as it primarily focuses on U.S. equities. A more diversified portfolio might include a wider range of asset classes, such as bonds or international stocks, to balance risk and potential returns.

Growth Info

Historically, the portfolio has demonstrated strong performance with a Compound Annual Growth Rate (CAGR) of 16.27%. This impressive growth rate outpaces many benchmarks, reflecting the strong performance of U.S. equities over recent years. However, the portfolio also experienced a maximum drawdown of -33.19%, highlighting its vulnerability during market downturns. While past performance is not indicative of future results, it underscores the importance of balancing high returns with risk management.

Projection Info

Monte Carlo simulations, which use historical data to predict future outcomes, suggest a wide range of potential returns for this portfolio. With an annualized return of 18.49% across simulations, there is potential for high growth. However, the 5th percentile projection of 153.62% indicates the possibility of lower-than-expected outcomes. It's important to remember that these projections are based on past data and do not guarantee future performance, emphasizing the need for ongoing portfolio assessment.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily concentrated in stocks, with nearly 100% allocation, and minimal cash holdings. This lack of diversification across asset classes can heighten risk, especially during equity market downturns. A more balanced allocation, incorporating different asset classes like bonds or real estate, could enhance stability and reduce volatility. Such diversification is a fundamental principle for mitigating risk and achieving more consistent returns over time.

Sectors Info

  • Technology
    49%
  • Consumer Discretionary
    10%
  • Financials
    9%
  • Health Care
    8%
  • Telecommunications
    8%
  • Industrials
    5%
  • Consumer Staples
    4%
  • Energy
    2%
  • Utilities
    2%
  • Real Estate
    2%
  • Basic Materials
    1%

The portfolio is heavily skewed towards the technology sector, comprising almost half of the total allocation. While tech stocks have driven significant growth, they also introduce higher volatility, particularly during periods of interest rate hikes or regulatory scrutiny. A more balanced sector allocation, including defensive sectors like utilities or consumer staples, can provide stability and reduce reliance on a single sector's performance.

Regions Info

  • North America
    99%

The portfolio is overwhelmingly concentrated in North American equities, with minimal exposure to other regions. This geographic concentration limits diversification and exposes the portfolio to region-specific risks, such as economic downturns or political instability in the U.S. Broadening geographic exposure to include more developed and emerging markets can enhance diversification benefits and potentially improve risk-adjusted returns.

Redundant positions Info

  • Vanguard Information Technology Index Fund ETF Shares
    SPDR S&P 500 ETF Trust
    Schwab U.S. Large-Cap Growth ETF
    Vanguard Total Stock Market Index Fund ETF Shares
    High correlation

The portfolio contains highly correlated assets, meaning they tend to move in tandem. This correlation limits the diversification benefits, as the portfolio's performance is heavily tied to the U.S. equity market. Reducing overlap by diversifying into less correlated assets can improve risk management. This strategy can help cushion the portfolio during market downturns, providing a more stable performance trajectory.

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.

Optimization using the Efficient Frontier suggests potential for improving the risk-return profile by adjusting asset allocations. However, the current portfolio's high correlation among assets limits diversification benefits. Prioritizing diversification by including less correlated assets could enhance efficiency. This approach aims to achieve the best possible risk-return ratio, fostering a more resilient portfolio over time.

Dividends Info

  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • SPDR S&P 500 ETF Trust 0.90%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 0.82%

The portfolio's dividend yield is relatively low at 0.82%, reflecting its focus on growth rather than income. While dividends can provide a steady income stream and contribute to total returns, this portfolio prioritizes capital appreciation. Investors seeking income may consider incorporating higher-yielding assets or funds to enhance dividend income, balancing growth with income generation.

Ongoing product costs Info

  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • SPDR S&P 500 ETF Trust 0.10%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.07%

The portfolio boasts impressively low costs, with a Total Expense Ratio (TER) of just 0.07%. Low costs are beneficial for long-term performance, as they minimize the drag on returns. Maintaining a focus on cost-efficient funds is a sound investment principle. Investors should continue to evaluate fund fees periodically to ensure the portfolio remains cost-effective and aligned with their financial goals.

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