Growth-Oriented Portfolio with Low Diversity and High Risk for Long-Term Investors Focused on North American Stocks

Report created on Jun 27, 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 composed of a mix of ETFs and individual stocks, heavily weighted towards growth-focused assets. With a significant portion allocated to the Vanguard Russell 1000 Growth Index Fund ETF Shares and First Trust NASDAQ-100 Equal Weighted Index Fund, the portfolio leans towards growth. This composition indicates a preference for capital appreciation over income generation. The presence of individual stocks like Datadog Inc and Rivian Automotive Inc adds an element of high-risk, high-reward potential. To enhance diversification, consider incorporating a broader range of asset classes and sectors to mitigate potential risks associated with market volatility.

Growth Info

Historically, the portfolio has achieved a compound annual growth rate (CAGR) of 7.12%, which indicates a decent return over time. However, the maximum drawdown of -30.68% highlights the portfolio's vulnerability to significant losses during market downturns. This performance suggests that while the portfolio has potential for growth, it is also subject to high volatility. To improve stability, consider balancing growth assets with more conservative investments that can provide a cushion during market declines, thereby reducing the impact of drawdowns on overall performance.

Projection Info

The Monte Carlo simulation, using a hypothetical initial investment, projects a wide range of potential outcomes for the portfolio. With only 312 out of 1,000 simulations showing positive returns, the annualized return across all simulations is 5.16%. This indicates a high level of uncertainty and risk associated with future performance. Monte Carlo simulations help visualize the potential variability in returns, emphasizing the need for a diversified approach. Consider strategies to reduce risk, such as diversifying into less correlated assets, to improve the likelihood of achieving positive returns in the future.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily concentrated in stocks, with 99.94% of the allocation in equities and a negligible amount in cash. This high allocation to equities suggests a strong growth orientation but also exposes the portfolio to significant market risk. A more balanced allocation across different asset classes, including bonds or other fixed-income securities, could provide stability and reduce overall portfolio risk. Diversifying into multiple asset classes can help mitigate the impact of market volatility and provide more consistent returns over time.

Sectors Info

  • Technology
    38%
  • Consumer Discretionary
    16%
  • Energy
    10%
  • Health Care
    8%
  • Telecommunications
    8%
  • Financials
    7%
  • Consumer Staples
    6%
  • Industrials
    6%
  • Utilities
    1%
  • Basic Materials
    1%

Sector allocation in the portfolio is dominated by technology, making up 37.68% of the total. This concentration in technology indicates a strong growth focus but also exposes the portfolio to sector-specific risks. Other sectors like consumer cyclicals, energy, and healthcare are also represented but to a lesser extent. To improve sector diversification, consider expanding exposure to underrepresented sectors. A more balanced sector allocation can help reduce the impact of sector-specific downturns and contribute to more stable performance across different market conditions.

Regions Info

  • North America
    98%
  • Europe Developed
    1%

Geographically, the portfolio is heavily concentrated in North America, with 98.23% of assets based there. This regional bias suggests a focus on familiar markets but also limits exposure to global growth opportunities. A more geographically diversified portfolio could capture growth in emerging markets and other developed regions. By incorporating international assets, the portfolio could benefit from different economic cycles and reduce reliance on the North American market. Diversification across regions can help mitigate geopolitical risks and enhance overall portfolio resilience.

Redundant positions Info

  • Vanguard Russell 1000 Growth Index Fund ETF Shares
    First Trust NASDAQ-100 Equal Weighted Index Fund
    High correlation

The portfolio contains highly correlated assets, particularly between the Vanguard Russell 1000 Growth Index Fund ETF Shares and the First Trust NASDAQ-100 Equal Weighted Index Fund. High correlation means these assets tend to move in the same direction, which can increase portfolio volatility. To reduce correlation risk, consider diversifying into assets that have a low correlation with current holdings. This can help smooth out returns and reduce the overall risk of the portfolio. A well-diversified portfolio with low correlation among assets is more likely to achieve consistent performance.

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.

Portfolio optimization suggests that the current allocation is not on the efficient frontier due to high correlation among assets. The efficient frontier represents the set of portfolios that offer the highest expected return for a given level of risk. To move closer to this optimal balance, consider diversifying into less correlated assets and adjusting the allocation to achieve a more efficient risk-return profile. This may involve incorporating different asset classes or sectors to reduce overall risk while maintaining potential for growth. Regularly reviewing and rebalancing the portfolio can help maintain alignment with financial goals.

Dividends Info

  • First Trust NASDAQ-100 Equal Weighted Index Fund 0.70%
  • Schwab U.S. Dividend Equity ETF 3.40%
  • Vanguard Russell 1000 Growth Index Fund ETF Shares 0.60%
  • Exxon Mobil Corp 2.30%
  • Weighted yield (per year) 1.25%

The portfolio's dividend yield stands at 1.25%, with the Schwab U.S. Dividend Equity ETF providing the highest yield at 3.4%. This indicates a moderate focus on income generation, with dividends contributing to overall returns. While growth is the primary objective, maintaining a portion of the portfolio in dividend-paying assets can provide a steady income stream and enhance total returns. Consider balancing growth and income assets to achieve a more stable and diversified portfolio. This approach can help cushion against market downturns and provide a more predictable cash flow.

Ongoing product costs Info

  • First Trust NASDAQ-100 Equal Weighted Index Fund 0.58%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Vanguard Russell 1000 Growth Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.18%

The portfolio's total expense ratio (TER) is relatively low at 0.18%, which is beneficial for long-term growth. Low costs mean more of the portfolio's returns are retained, enhancing the compounding effect over time. Keeping investment costs low is crucial for maximizing net returns. Regularly reviewing and optimizing the cost structure can ensure that the portfolio remains cost-effective. Consider maintaining a focus on low-cost investment options, as this can significantly impact long-term performance and help achieve financial goals more efficiently.

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