High Growth Portfolio with Low Diversification and High Correlation in U.S. Technology Sector

Report created on Nov 10, 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 composed predominantly of ETFs, with a heavy emphasis on U.S. large-cap growth and technology sectors. This composition suggests a focus on growth-oriented investments, with 30% allocated to Schwab U.S. Large-Cap Growth ETF and another 30% to the SPDR® Portfolio S&P 500 ETF. Smaller allocations are made to sectors like semiconductors and information technology, indicating a tech-heavy tilt. This setup provides potential for high returns, but also increases exposure to sector-specific risks. Balancing the portfolio with more diverse asset classes could reduce vulnerability to market swings in tech.

Growth Info

Historically, the portfolio has shown impressive performance with a Compound Annual Growth Rate (CAGR) of 21.48%. However, it also experienced a significant maximum drawdown of -33.87%, highlighting its vulnerability during market downturns. The high returns are promising, but the drawdown indicates a level of risk that might not suit all investors. To manage this risk, incorporating more defensive assets could help stabilize returns during volatile periods, ensuring a smoother investment journey over time.

Projection Info

Using a Monte-Carlo simulation, which models various potential future outcomes based on historical data, the portfolio shows a wide range of possible returns. With a median projected return of 1,359.69% and a 5th percentile at 189.54%, the potential for high gains is evident. However, the variability suggests significant risk. To mitigate this, diversifying into less correlated assets could help stabilize returns and reduce the likelihood of extreme losses, aligning future performance more closely with investment goals.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with a tiny fraction in cash. This allocation reflects a high-risk, high-reward strategy typical of growth-focused portfolios. While stocks offer the potential for substantial capital appreciation, they also expose the portfolio to market volatility. Introducing a mix of bonds or other fixed-income securities could provide a buffer against market fluctuations, offering a more balanced risk-return profile that may suit a wider range of investment objectives.

Sectors Info

  • Technology
    46%
  • Financials
    11%
  • Consumer Discretionary
    10%
  • Health Care
    8%
  • Telecommunications
    7%
  • Industrials
    6%
  • Energy
    4%
  • Consumer Staples
    4%
  • Basic Materials
    2%
  • Utilities
    1%
  • Real Estate
    1%

Sector allocation is heavily skewed towards technology, which constitutes over 46% of the portfolio. This concentration reflects a bullish stance on tech, but also heightens sector-specific risks. The remaining sectors, such as financial services and consumer cyclicals, are underrepresented. To enhance diversification, consider reallocating some investments into sectors with lower representation. This could reduce dependency on the tech sector and provide more stability across different economic cycles.

Regions Info

  • North America
    97%
  • Asia Developed
    1%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly focused on North America, with 97.44% of assets allocated there. This concentration increases exposure to North American market risks and may miss out on growth opportunities in other regions. Broadening the geographic allocation could capture potential growth in emerging markets and developed economies outside North America. This would not only diversify risk but also enhance the portfolio's resilience against regional economic downturns.

Redundant positions Info

  • Schwab U.S. Large-Cap Growth ETF
    Vanguard Information Technology Index Fund ETF Shares
    VanEck Semiconductor ETF
    SPDR® Portfolio S&P 500 ETF
    High correlation

The portfolio exhibits high correlation among certain assets, particularly within the technology sector. This means that these assets tend to move in tandem, reducing the diversification benefits. By holding highly correlated assets, the portfolio may not fully capitalize on the risk-reducing potential of diversification. To address this, consider reducing exposure to overlapping assets and introducing investments that have historically shown lower correlation with the existing holdings, thereby enhancing overall portfolio stability.

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 the high correlation between assets, particularly in the tech sector. This will enhance diversification. Moving along the efficient frontier can help achieve a riskier or more conservative portfolio. To take on more risk, increase exposure to higher volatility assets. For a more conservative stance, allocate more to stable, low-risk assets. This approach allows for tailoring the portfolio to meet specific risk-return preferences, enhancing the potential for achieving financial goals.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Schwab U.S. Dividend Equity ETF 3.40%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • VanEck Semiconductor ETF 0.40%
  • SPDR® Portfolio S&P 500 ETF 1.20%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Weighted yield (per year) 1.07%

The portfolio's dividend yield stands at 1.07%, with the Schwab U.S. Dividend Equity ETF contributing the highest yield at 3.4%. While dividends provide a steady income stream, the overall yield is relatively low, reflecting the portfolio's growth orientation. Investors seeking higher income may need to adjust the allocation towards dividend-focused assets. Balancing growth and income could enhance the portfolio's total return potential, catering to those who value both capital appreciation and regular income.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • VanEck Semiconductor ETF 0.35%
  • SPDR® Portfolio S&P 500 ETF 0.02%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Weighted costs total (per year) 0.09%

The portfolio's total expense ratio (TER) is 0.09%, indicating a cost-effective structure. The SPDR® Portfolio S&P 500 ETF has the lowest cost at 0.02%, while the VanEck Semiconductor ETF is the highest at 0.35%. Keeping costs low is crucial for maximizing net returns over time. Regularly reviewing and managing expenses ensures that costs do not erode investment gains. Consider reallocating to lower-cost alternatives if available, maintaining a focus on cost efficiency while achieving desired investment objectives.

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