Aggressive Portfolio with High Tech Exposure and Moderate Diversification Needs Better Balance for Optimal Performance

Report created on Nov 24, 2024

Risk profile Info

6/7
Aggressive
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio is heavily concentrated with a significant portion in technology stocks, notably the Invesco NASDAQ 100 ETF and NVIDIA Corporation. This creates a tech-heavy bias, which can be risky if the tech sector faces downturns. While there is some diversification with stocks like Verizon and Vanguard Total International Stock Index Fund, it's still skewed towards specific sectors and regions. Balancing the portfolio with a broader range of asset classes could reduce risk and provide more stability. Diversifying across different sectors and asset types can enhance resilience against market volatility.

Growth Info

Historically, the portfolio has shown impressive performance with a CAGR of 31.77%, indicating strong growth potential. However, the max drawdown of -52.61% suggests significant volatility, which could lead to substantial losses during market downturns. This high volatility is typical for aggressive portfolios, which aim for high returns but come with increased risk. To mitigate this, incorporating more stable assets can help cushion against sharp declines. A focus on long-term growth while managing short-term fluctuations is essential for maintaining a healthy investment trajectory.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, we project various potential outcomes for the portfolio. This method assesses the impact of risk and uncertainty on investment returns. The median projected return is -73.75%, indicating potential for significant losses. Only 296 simulations resulted in positive returns, highlighting the portfolio's aggressive nature. To improve these projections, reducing risk by diversifying asset classes and sectors is recommended. A balanced approach can help stabilize returns and increase the likelihood of achieving positive outcomes in different market conditions.

Asset classes Info

  • Stocks
    100%

The portfolio is predominantly composed of stocks, accounting for nearly 100% of the holdings. This concentration exposes the portfolio to high market volatility, as stocks are generally more volatile than other asset classes like bonds. While stocks can offer substantial growth, the lack of diversification into other asset classes may increase risk. Incorporating bonds or other assets could provide a buffer against market fluctuations, offering more consistent returns. A diversified mix of asset classes can help achieve a more balanced risk-return profile, aligning with long-term investment goals.

Sectors Info

  • Technology
    53%
  • Telecommunications
    13%
  • Consumer Discretionary
    13%
  • Consumer Staples
    10%
  • Health Care
    4%
  • Industrials
    3%
  • Financials
    2%
  • Basic Materials
    1%
  • Utilities
    1%
  • Energy
    1%

With a significant 52.61% allocation in technology, the portfolio is heavily weighted towards this sector. While tech stocks have been strong performers, over-reliance on a single sector can increase vulnerability to sector-specific risks. Other sectors like Communication Services and Consumer Cyclicals hold smaller allocations, providing some diversification but not enough to offset the tech dominance. A more balanced sector allocation could reduce risk and enhance overall portfolio stability. Spreading investments across various sectors can help mitigate the impact of downturns in any one sector.

Regions Info

  • North America
    91%
  • Europe Developed
    4%
  • Asia Emerging
    2%
  • Japan
    1%
  • Asia Developed
    1%

Geographically, the portfolio is heavily concentrated in North America, with 90.72% of the holdings. This regional bias limits exposure to international markets, which could provide diversification benefits and reduce risk. While North America has been a strong performer, global diversification can help capture growth opportunities in other regions. Expanding geographic allocation to include more international markets can improve resilience against regional economic fluctuations. A more global approach can enhance potential returns while reducing dependence on any single market.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Schwab U.S. Large-Cap Growth ETF
    High correlation

The portfolio shows high correlation between assets, particularly within the Invesco NASDAQ 100 ETF and Schwab U.S. Large-Cap Growth ETF. This overlap limits diversification benefits, as correlated assets tend to move in the same direction. Reducing correlation by including assets that behave differently can enhance diversification and reduce overall portfolio risk. A more diversified portfolio with low-correlated assets can provide a smoother return profile, minimizing the impact of market volatility. Identifying and addressing highly correlated assets can lead to a more balanced investment strategy.

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, addressing the issue of overlapping, highly correlated assets is essential. Removing redundant holdings can enhance diversification and reduce risk. The efficient frontier concept can guide adjustments, allowing shifts towards a riskier or more conservative portfolio. Moving towards the frontier involves balancing risk and return through asset allocation. Investors can achieve a more efficient portfolio by aligning their risk appetite with their financial goals. A focus on diversification and cost management can improve performance and support long-term success.

Dividends Info

  • Invesco NASDAQ 100 ETF 0.60%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Verizon Communications Inc 6.20%
  • Weighted yield (per year) 0.88%

The portfolio's dividend yield is relatively low at 0.88%, indicating a focus on growth rather than income. While growth stocks can offer substantial capital appreciation, they typically pay lower dividends. Verizon stands out with a 6.2% yield, providing some income stability. For investors seeking regular income, increasing exposure to dividend-paying stocks or funds could be beneficial. A balanced approach combining growth and income-generating assets can help achieve a more consistent cash flow, aligning with both short-term and long-term financial objectives.

Ongoing product costs Info

  • Invesco NASDAQ 100 ETF 0.15%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.06%

The portfolio's total expense ratio (TER) is low at 0.06%, indicating cost-effective management. Low costs are crucial for maximizing returns, as high fees can erode investment gains over time. The Invesco NASDAQ 100 ETF and Schwab U.S. Large-Cap Growth ETF have particularly low expense ratios, contributing to the overall cost efficiency. Maintaining a focus on low-cost investments can enhance net returns and support long-term growth. Regularly reviewing and managing investment costs is essential for optimizing portfolio performance and achieving financial goals.

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