Growth-Oriented Portfolio with High Tech Exposure and Low Geographic Diversification

Report created on Jul 7, 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 evenly split among four ETFs, each holding 25%: Invesco QQQ Trust, Schwab U.S. Dividend Equity ETF, Vanguard Information Technology Index Fund ETF Shares, and Vanguard S&P 500 ETF. This composition indicates a strong focus on U.S. equities with a significant tilt towards technology. While the portfolio is well-balanced in terms of equal allocation among these funds, it lacks diversification, both in terms of asset classes, as it is overwhelmingly invested in stocks, and sectors, with a heavy emphasis on technology. This setup can lead to higher volatility, especially in tech-driven market downturns.

Growth Info

Historically, the portfolio has performed well with a Compound Annual Growth Rate (CAGR) of 16.9%. However, it has also experienced a significant maximum drawdown of -31.39%, indicating substantial volatility. The performance is concentrated, with just 40 days accounting for 90% of returns. This suggests a reliance on high-impact market days, which can be risky. To mitigate this, consider strategies that could reduce volatility while maintaining growth potential, such as introducing more diversified asset classes or sectors to balance the tech-heavy focus.

Projection Info

A Monte Carlo simulation, which uses random sampling to predict future outcomes, was conducted with 1,000 simulations. Assuming a hypothetical initial investment, the results show a broad range of possible future returns, with a 5th percentile return of 157.17% and a 67th percentile return of 1,142.92%. The median projection is a robust 793.32%. This suggests a high potential for growth, albeit with considerable uncertainty. To potentially improve outcomes, consider diversifying the portfolio to reduce risk and increase the likelihood of achieving more consistent returns.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with a negligible cash position of 0.1717%. This high equity concentration aligns with a growth-focused strategy but also introduces significant risk due to the lack of asset class diversification. A portfolio with this setup is more susceptible to stock market volatility. To manage risk, consider diversifying into other asset classes, such as bonds or real estate, which can provide stability and reduce overall volatility while still aiming for growth.

Sectors Info

  • Technology
    48%
  • Consumer Discretionary
    9%
  • Financials
    8%
  • Health Care
    8%
  • Telecommunications
    7%
  • Consumer Staples
    6%
  • Industrials
    6%
  • Energy
    4%
  • Basic Materials
    1%
  • Utilities
    1%
  • Real Estate
    1%

The sector allocation is heavily skewed towards technology, which makes up nearly half of the portfolio at 48.5%. Other sectors like Consumer Cyclicals, Financial Services, and Healthcare are present but in much smaller proportions. This concentration in tech can lead to higher returns during tech booms but also exposes the portfolio to sector-specific risks. To balance this, diversifying into underrepresented sectors could provide a buffer against tech downturns and enhance overall portfolio resilience.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is almost entirely focused on North America, with 98.85% exposure. This lack of geographic diversification means the portfolio is highly dependent on the U.S. market's performance. While this can be beneficial in a strong U.S. market, it also exposes the portfolio to risks specific to this region. To mitigate these risks, consider increasing exposure to international markets, which can provide diversification benefits and reduce reliance on any single geographic area.

Redundant positions Info

  • Invesco QQQ Trust
    Vanguard Information Technology Index Fund ETF Shares
    High correlation

The portfolio shows high correlations, particularly between the Invesco QQQ Trust and the Vanguard Information Technology Index Fund ETF Shares. This high correlation suggests that these assets tend to move in the same direction, offering little diversification benefit. To improve diversification and reduce risk, consider replacing one of these highly correlated assets with an asset that has a lower correlation with the rest of the portfolio, thereby enhancing the overall diversification and potentially 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, focus on reducing overlap by removing highly correlated assets that don't enhance diversification. Moving along the efficient frontier can help achieve a riskier or more conservative portfolio. To shift towards a riskier profile, increase exposure to high-growth assets, while for a more conservative stance, consider adding bonds or other stable investments. Balancing risk and return is key, so aim for a diversified portfolio that aligns with your risk tolerance and financial goals for optimal performance.

Dividends Info

  • Invesco QQQ Trust 0.60%
  • Schwab U.S. Dividend Equity ETF 3.30%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.42%

The portfolio's dividend yield is 1.42%, with the Schwab U.S. Dividend Equity ETF contributing the highest yield at 3.3%. This yield is relatively modest, reflecting the portfolio's growth-oriented strategy, which favors capital appreciation over income generation. For investors seeking a balance between growth and income, consider increasing exposure to high-dividend stocks or funds. This can provide a more stable income stream while still participating in the potential capital gains of a growth-focused portfolio.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.10%

The portfolio's total expense ratio (TER) is a low 0.1%, indicating cost-efficiency. This is advantageous as it helps maximize net returns over time. Keeping costs low is a crucial aspect of successful investing, as high fees can erode returns. While the current costs are favorable, it's important to periodically review and compare expense ratios with similar funds to ensure continued cost-effectiveness. Maintaining a low-cost structure should remain a priority to enhance overall portfolio performance.

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