Growth-Oriented Portfolio with High Risk and Low Diversification Focused on U.S. Stocks and Technology Sector

Report created on Dec 2, 2024

Risk profile

  • Secure
    Speculative

The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.

Diversification profile

  • Focused
    Diversified

The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.

Positions

The portfolio is primarily composed of ETFs, with a significant portion allocated to the Vanguard S&P 500 ETF and the Vanguard Total Stock Market Index Fund ETF Shares, making up nearly three-quarters of the portfolio. The rest is divided among the Vanguard Information Technology Index Fund ETF Shares, SPDR S&P 500 ETF Trust, and Invesco QQQ Trust. This composition suggests a strong focus on U.S. equities, which indicates a growth-oriented investment strategy. However, the portfolio's heavy reliance on a few ETFs may expose it to sector-specific risks and limit its diversification benefits.

Growth Info

Historically, the portfolio has exhibited strong performance, with a compound annual growth rate (CAGR) of 15.24%. This growth rate reflects the robust returns of the U.S. stock market over recent years. However, it's essential to consider the maximum drawdown of -33.49%, which indicates the potential downside risk during market downturns. The portfolio's performance is concentrated, with only 35 days accounting for 90% of returns. This highlights the importance of timing and market conditions in achieving such performance, underscoring the need for continuous monitoring and adjustment.

Projection Info

A forward projection using a Monte Carlo simulation provides insights into potential future performance. With 1,000 simulations, the portfolio shows an annualized return of 17.92%, with the 5th percentile at 154.96% and the 67th percentile at 1,019.85%. This simulation, which uses random sampling to model potential outcomes, suggests a wide range of possible returns, emphasizing the inherent uncertainty in future performance. While the median outcome is promising, investors should remain cautious and consider diversifying to manage risks effectively.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, with 99.83% allocated to equities and a minimal 0.17% in cash. This allocation aligns with a growth-focused strategy, aiming for higher returns through equity investments. However, such concentration in a single asset class increases exposure to market volatility and economic cycles. To mitigate risk, consider incorporating other asset classes, such as bonds or alternative investments, to achieve a more balanced and diversified portfolio that can better withstand market fluctuations.

Sectors Info

  • Technology
    42%
  • Financials
    11%
  • Health Care
    9%
  • Consumer Discretionary
    9%
  • Telecommunications
    8%
  • Industrials
    7%
  • Consumer Staples
    5%
  • Energy
    3%
  • Utilities
    2%
  • Real Estate
    2%
  • Basic Materials
    2%

The sector allocation is predominantly tilted towards technology, which constitutes 42.20% of the portfolio. Other significant sectors include financial services, healthcare, and consumer cyclicals. While this concentration in technology reflects a bet on the sector's growth potential, it also exposes the portfolio to sector-specific risks, such as regulatory changes or technological disruptions. Diversifying across additional sectors can help mitigate these risks and provide a more stable return profile, especially if the technology sector experiences a downturn.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly concentrated in North America, with 99.30% of assets allocated to this region. This focus on U.S. equities aligns with the portfolio's growth orientation but limits exposure to international markets. While U.S. markets have historically performed well, diversifying into other regions can provide access to different economic cycles and growth opportunities. Expanding geographic diversification could enhance risk-adjusted returns and offer a buffer against region-specific economic challenges.

Redundant positions Info

  • Vanguard Information Technology Index Fund ETF Shares
    Invesco QQQ Trust
    High correlation
  • Vanguard Total Stock Market Index Fund ETF Shares
    Vanguard S&P 500 ETF
    SPDR S&P 500 ETF Trust
    High correlation

The portfolio exhibits high correlations among certain assets, particularly between the Vanguard Information Technology Index Fund ETF Shares and the Invesco QQQ Trust, as well as between the Vanguard Total Stock Market Index Fund ETF Shares, Vanguard S&P 500 ETF, and SPDR S&P 500 ETF Trust. Such correlations suggest overlapping exposures that do not contribute to diversification benefits. Reducing these overlaps by selecting complementary assets can enhance the portfolio's diversification, potentially smoothing returns and reducing volatility.

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, focus on reducing overlapping assets that offer limited diversification benefits. By addressing these overlaps, the portfolio could achieve a more efficient risk-return profile. Moving along the efficient frontier, consider adding uncorrelated assets to either increase risk for potential higher returns or decrease risk for greater stability. This strategic shift can help align the portfolio with personal risk preferences and financial goals, ensuring a more resilient investment strategy that can adapt to changing market conditions.

Dividends Info

  • Invesco QQQ Trust 0.60%
  • SPDR S&P 500 ETF Trust 1.20%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Weighted yield (per year) 1.09%

The portfolio's dividend yield stands at 1.09%, with contributions from various ETFs, including the SPDR S&P 500 ETF Trust and Vanguard Total Stock Market Index Fund ETF Shares, both yielding 1.2%. While the focus is on growth, a modest dividend yield provides some income stability and can be reinvested to compound growth over time. Investors seeking higher income may consider increasing exposure to dividend-paying assets, but this should be balanced against the portfolio's overall growth objectives.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • SPDR S&P 500 ETF Trust 0.10%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.05%

The total expense ratio (TER) of the portfolio is a low 0.05%, reflecting the cost-efficiency of the selected ETFs. This low cost structure is advantageous, as it minimizes the drag on returns and enhances long-term growth potential. The Vanguard ETFs, in particular, contribute to this efficiency with their minimal expense ratios. Keeping investment costs low is crucial for maximizing net returns, so maintaining this focus on cost-effective investments should remain a priority as the portfolio evolves.

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