A growth-focused portfolio with high concentration in US equities and technology sector
Report created on Dec 14, 2024Risk profile
5/7
Diversification profile
2/5
Positions
-
VO Vanguard S&P 500 ETF
VOO - US9229083632 60.00% -
QQ Invesco NASDAQ 100 ETF
QQQM - US46138G6492 40.00%
This portfolio is heavily weighted towards two major ETFs: the Vanguard S&P 500 ETF at 60% and the Invesco NASDAQ 100 ETF at 40%. This composition indicates a strong focus on large-cap US equities, with a significant emphasis on technology and growth stocks. While this allocation can drive substantial returns, it also exposes the portfolio to higher volatility, particularly during market downturns. It's essential to consider diversifying beyond these two ETFs to mitigate risks and stabilize returns over time.
Growth
Historically, the portfolio has shown a commendable compound annual growth rate (CAGR) of 16.47%, reflecting its growth-oriented nature. However, it has also experienced a significant maximum drawdown of -28.52%, highlighting vulnerability during market corrections. This volatility is characteristic of a growth-focused strategy, where the potential for high returns comes with increased risk. Investors should weigh their risk tolerance against the possibility of such downturns and consider strategies like diversification or hedging to protect their investments.
Projection
The Monte Carlo simulation, which uses historical data to project future outcomes, suggests a wide range of potential returns for this portfolio. With 1,000 simulations, the median outcome shows a potential growth of 731.5%, while the 5th percentile indicates a more conservative growth scenario of 154.25%. Although the simulation provides a glimpse of possible future performance, it's crucial to remember that it relies on historical data, which may not always predict future market conditions accurately. Regularly reviewing and adjusting the portfolio can help align it with evolving market trends and personal goals.
Asset classes
- Stocks 100%
The portfolio is predominantly invested in stocks, with a staggering 99.94% allocation, leaving a minuscule portion in cash. This heavy concentration in equities underscores a high-risk, high-reward strategy, suitable for investors with a strong appetite for risk. While this setup can yield significant returns, it's vulnerable to market volatility. Introducing other asset classes such as bonds, real estate, or commodities could enhance diversification, potentially smoothing out returns and reducing overall risk.
Sectors
- Technology 40%
- Telecommunications 12%
- Consumer Discretionary 12%
- Health Care 9%
- Financials 8%
- Industrials 6%
- Consumer Staples 6%
- Energy 2%
- Utilities 2%
- Basic Materials 2%
- Real Estate 1%
Sector-wise, the portfolio is heavily skewed towards technology, which comprises 40.24% of the total allocation. This concentration reflects a bet on the continued growth of tech companies but also increases exposure to sector-specific risks. While technology has been a strong performer, diversifying into other sectors like healthcare or consumer staples could provide a buffer against sector downturns. A more balanced sectoral allocation can help mitigate risks associated with over-reliance on a single sector.
Regions
- North America 99%
- Europe Developed 1%
Geographically, the portfolio is overwhelmingly concentrated in North America, with 98.67% of assets. This focus on the US market offers exposure to some of the world's largest and most stable companies but limits international diversification. Expanding geographic allocation to include emerging markets or other developed regions could enhance diversification, offering exposure to different economic cycles and growth opportunities. This broader diversification can help reduce the impact of regional economic downturns on the portfolio.
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.
This portfolio could potentially be optimized using the Efficient Frontier, which aims to achieve the best possible risk-return ratio. By adjusting the allocation between the current assets, it may be possible to enhance returns for a given level of risk or reduce risk for a given level of return. However, optimization doesn't guarantee diversification or align with all investment goals. It's a tool to refine the portfolio's efficiency, and investors should regularly review and adjust allocations to ensure they meet their specific risk tolerance and objectives.
Dividends
- Invesco NASDAQ 100 ETF 0.60%
- Vanguard S&P 500 ETF 1.20%
- Weighted yield (per year) 0.96%
The portfolio offers a modest dividend yield of 0.96%, with the Vanguard S&P 500 ETF contributing 1.2% and the Invesco NASDAQ 100 ETF 0.6%. While dividends provide a steady income stream, the current yield is relatively low, reflecting the growth-focused nature of the portfolio. Investors seeking higher income may want to explore dividend-focused ETFs or stocks to boost yield. Balancing growth and income can offer a more stable return profile, particularly for those nearing retirement or needing regular cash flow.
Ongoing product costs
- Invesco NASDAQ 100 ETF 0.15%
- Vanguard S&P 500 ETF 0.03%
- Weighted costs total (per year) 0.08%
The portfolio's total expense ratio (TER) is 0.08%, which is relatively low, thanks to the cost-efficient nature of ETFs. Keeping costs down is crucial for long-term investment success, as high fees can erode returns over time. While the current costs are favorable, it's always worth exploring other low-cost investment options to maintain or even reduce expenses further. Regularly reviewing and comparing fund expenses can ensure that the portfolio remains cost-effective and aligned with financial goals.
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