Moderately Diversified Growth Portfolio with High Tech Focus and Strong Historical Performance

Report created on Nov 9, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio is composed of four positions, with Microsoft Corporation being the largest at 40%, followed by Invesco NASDAQ 100 ETF at 30%. The rest includes iShares MSCI EAFE ETF and ProShares Ultra S&P500, each making up 15%. This composition reflects a strong inclination towards technology stocks and US markets. The portfolio is moderately diversified, with a focus on growth, which might appeal to investors seeking higher returns. However, the concentration in a few positions and sectors may expose it to higher volatility and sector-specific risks.

Growth Info

Historically, this portfolio has shown impressive performance with a CAGR of 18.04%. However, the max drawdown of -35.95% indicates significant volatility, which might concern risk-averse investors. The portfolio's returns are concentrated in a few days, which is typical for growth-oriented investments. This historical performance suggests that while the portfolio can deliver high returns, it also requires a strong stomach for potential downturns. Investors should be prepared for both the highs and the lows, ensuring they are comfortable with the level of risk involved in pursuit of these returns.

Projection Info

Using a Monte Carlo simulation, which involves running numerous random scenarios to predict future outcomes, the portfolio shows promising potential. Assuming a hypothetical initial investment, the median outcome projects a return of 710.45%, with the possibility of reaching up to 1,072.56% in more favorable scenarios. However, the 5th percentile suggests a potential drop to 59.48%. With the majority of simulations indicating positive returns, this projection aligns with a growth-oriented strategy but also highlights the inherent risks and variability in outcomes. Investors should weigh these projections against their risk tolerance and investment goals.

Asset classes Info

  • Stocks
    97%
  • Cash
    2%
  • Other
    1%

The portfolio's asset class allocation is heavily skewed towards stocks, accounting for over 96% of the total. This high equity exposure aligns with a growth-focused strategy, aiming for capital appreciation. However, it also increases the portfolio's sensitivity to market fluctuations. The minimal presence of bonds and cash suggests limited downside protection. Investors might consider diversifying into other asset classes to balance risk and reward better. A more diversified asset class allocation could help mitigate volatility and provide more stability during market downturns.

Sectors Info

  • Technology
    62%
  • Consumer Discretionary
    7%
  • Telecommunications
    7%
  • Financials
    5%
  • Health Care
    5%
  • Industrials
    5%
  • Consumer Staples
    4%
  • Basic Materials
    2%
  • Energy
    1%
  • Utilities
    1%
  • Real Estate
    1%

The sector allocation is dominated by technology, making up nearly 62% of the portfolio. This concentration reflects a strong belief in the tech sector's growth potential but also exposes the portfolio to sector-specific risks, such as regulatory changes or market saturation. Other sectors like consumer cyclicals, communication services, and financial services are present but in much smaller allocations. To reduce sector risk, investors might consider diversifying into sectors with different economic cycles. This can help cushion the portfolio against downturns in any single sector, providing a more balanced approach.

Regions Info

  • North America
    84%
  • Europe Developed
    10%
  • Japan
    3%
  • Australasia
    1%
  • Asia Developed
    1%

Geographically, the portfolio is heavily weighted towards North America, with over 84% exposure. This reflects a strong focus on the US market, which can be beneficial given its historical performance and economic strength. However, this concentration may limit the portfolio's exposure to growth opportunities in other regions. Europe and Japan are represented but to a lesser extent, while emerging markets have minimal presence. Investors might consider increasing geographic diversification to capture growth in different regions and reduce reliance on any single market's performance.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    ProShares Ultra S&P500
    High correlation

The portfolio contains highly correlated assets, particularly between Invesco NASDAQ 100 ETF and ProShares Ultra S&P500. This correlation suggests that these assets tend to move in the same direction, offering limited diversification benefits. High correlation can increase portfolio risk during market downturns, as losses in one asset may not be offset by gains in another. To enhance diversification, investors could consider replacing some correlated assets with those that have lower correlations. This could help reduce overall portfolio volatility and improve risk-adjusted returns.

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, it's essential to address the issue of overlapping, highly correlated assets that offer limited diversification benefits. By reducing these correlations, the portfolio can achieve better diversification and risk management. Moving along the efficient frontier, investors can choose a riskier or more conservative approach by adjusting asset allocation. Those seeking higher returns might increase equity exposure, while those desiring stability could add more bonds or cash. It's crucial to align any changes with the investor's risk appetite and long-term financial goals.

Dividends Info

  • iShares MSCI EAFE ETF 3.00%
  • Microsoft Corporation 0.50%
  • Invesco NASDAQ 100 ETF 0.60%
  • ProShares Ultra S&P500 0.70%
  • Weighted yield (per year) 0.94%

The portfolio's dividend yield is relatively low at 0.94%, reflecting its growth-oriented nature. Microsoft Corporation contributes a modest 0.5% yield, while the ETFs offer slightly higher yields. This low yield indicates that the portfolio prioritizes capital appreciation over income generation. Investors seeking regular income might find this portfolio less appealing. To boost income, investors could consider adding higher-yielding assets. However, this should be balanced with the overall growth strategy, ensuring that any additions align with long-term investment goals.

Ongoing product costs Info

  • iShares MSCI EAFE ETF 0.33%
  • Invesco NASDAQ 100 ETF 0.15%
  • ProShares Ultra S&P500 0.91%
  • Weighted costs total (per year) 0.23%

The portfolio's total expense ratio (TER) is 0.23%, which is reasonable for a growth-focused portfolio. The costs are primarily driven by the ProShares Ultra S&P500 ETF at 0.91%, while the other ETFs have lower expense ratios. Keeping investment costs low is crucial for maximizing returns over the long term. Investors should regularly review their portfolio costs and consider lower-cost alternatives if available. However, it's important to weigh cost savings against potential performance trade-offs, ensuring that any changes align with the overall investment strategy and goals.

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