High-Risk Growth Portfolio with Low Diversification Focused on U.S. Market

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.

What type of investor this portfolio is suitable for

Growth Investors

This portfolio is well-suited for investors with a high-risk tolerance, seeking significant growth over a long-term horizon. Such investors are typically comfortable with market volatility and potential drawdowns in pursuit of higher returns. They often have a strong understanding of market dynamics and are willing to take calculated risks. Their primary goal is capital appreciation, and they are less focused on generating income through dividends. These investors generally have a long investment horizon, allowing them to ride out market fluctuations and capitalize on growth opportunities.

Positions

  • Avantis® U.S. Small Cap Value ETF
    AVUV - US0250728773
    12.50%
  • Chevron Corp
    CVX - US1667641005
    12.50%
  • JPMorgan Chase & Co
    JPM - US46625H1005
    12.50%
  • SPDR® S&P MIDCAP 400 ETF Trust
    MDY - US78467Y1073
    12.50%
  • Invesco Aerospace & Defense ETF
    PPA - US46137V1008
    12.50%
  • Visa Inc. Class A
    V - US92826C8394
    12.50%
  • Vanguard Information Technology Index Fund ETF Shares
    VGT - US92204A7028
    12.50%
  • Health Care Select Sector SPDR® Fund
    XLV - US81369Y2090
    12.50%

The portfolio is heavily concentrated in U.S. equities, with an allocation of 99.92% in stocks and minimal cash holdings. With eight positions, each holding 12.5%, the portfolio lacks diversification across asset classes. This composition can lead to significant volatility due to its concentrated nature. While focusing on equities can offer high growth potential, it also increases exposure to market downturns. To mitigate risk, consider diversifying into other asset classes, such as bonds or international equities, to balance the high-risk profile and provide a cushion during market turbulence.

Growth

Historically, the portfolio has shown robust performance with a CAGR of 14.88%. However, it has experienced a significant maximum drawdown of -39.66%, indicating vulnerability during market downturns. The concentrated nature of the portfolio means that a small number of days account for most of the returns. This highlights the importance of timing and the potential impact of market volatility. To enhance stability, consider strategies that can reduce drawdown, such as incorporating more defensive assets or implementing a rebalancing strategy to maintain desired risk levels.

Projection

Using a Monte Carlo simulation, the portfolio's future performance was projected with 1,000 simulations. The results show a wide range of potential outcomes, with a median end value of 637.26% and a high annualized return of 19.3%. However, the 5th percentile indicates a potential downside of 21.57%. Monte Carlo simulations help in understanding the variability of returns and the risks involved. To prepare for potential fluctuations, consider stress-testing the portfolio under different scenarios and adjusting allocations to align with long-term financial goals and risk tolerance.

Asset classes

  • Stocks
    100%
  • Cash
    0%

The portfolio is almost entirely invested in stocks, with a negligible cash component. This high equity exposure is suitable for investors seeking growth but comes with increased risk. The lack of diversification into other asset classes like bonds or commodities can amplify volatility. A more balanced approach could involve introducing fixed-income securities to stabilize returns and reduce risk. Diversifying across asset classes can help in achieving a more resilient portfolio that can better withstand economic cycles and market fluctuations.

Sectors

  • Financials
    30%
  • Industrials
    16%
  • Technology
    16%
  • Energy
    15%
  • Health Care
    14%
  • Consumer Discretionary
    4%
  • Basic Materials
    2%
  • Consumer Staples
    1%
  • Real Estate
    1%
  • Telecommunications
    0%
  • Utilities
    0%

Sector allocation is skewed towards Financial Services, Industrials, and Technology, making up over 60% of the portfolio. While these sectors have growth potential, overexposure can lead to increased risk during sector-specific downturns. A more diversified sector allocation could help in spreading risk and capturing opportunities across different economic conditions. Consider evaluating sector performance trends and rebalancing to ensure exposure aligns with economic forecasts and personal risk appetite, potentially incorporating sectors with defensive characteristics to mitigate volatility.

Regions

  • North America
    99%
  • Europe Developed
    0%
  • Africa/Middle East
    0%
  • Latin America
    0%
  • Asia Emerging
    0%
  • Asia Developed
    0%

Geographically, the portfolio is overwhelmingly concentrated in North America, with 99.29% of assets allocated there. This focus limits exposure to global markets and could miss out on growth opportunities in other regions. While a U.S.-centric approach can be beneficial due to market familiarity, diversifying into international markets could provide a hedge against domestic economic downturns and currency fluctuations. Expanding geographic diversification can also enhance the portfolio's resilience and offer potential returns from emerging and developed markets outside North America.

Redundant positions

  • SPDR® S&P MIDCAP 400 ETF Trust
    Avantis® U.S. Small Cap Value ETF
    High correlation

The portfolio exhibits high correlation between certain assets, such as the SPDR® S&P MIDCAP 400 ETF Trust and Avantis® U.S. Small Cap Value ETF. This correlation suggests that these assets tend to move in tandem, potentially increasing portfolio risk during market volatility. Diversifying with assets that have low or negative correlation can help in reducing overall portfolio risk and smoothing returns. Consider exploring investment options that provide diversification benefits by behaving differently under various market conditions, thereby enhancing the portfolio's risk-adjusted performance.

Dividends

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Chevron Corp 3.00%
  • JPMorgan Chase & Co 1.90%
  • SPDR® S&P MIDCAP 400 ETF Trust 1.10%
  • Invesco Aerospace & Defense ETF 0.60%
  • Visa Inc. Class A 0.70%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Health Care Select Sector SPDR® Fund 1.60%
  • Weighted yield (per year) 1.38%

The portfolio has a modest dividend yield of 1.38%, with contributions from various holdings like Chevron Corp and Health Care Select Sector SPDR® Fund. While dividends can provide a steady income stream, the focus here seems to be more on growth rather than income. For investors seeking higher income, increasing exposure to dividend-focused investments might be beneficial. However, if the primary goal is growth, maintaining the current balance could be appropriate. Regularly review dividend yields and reinvestment strategies to ensure they align with income needs and growth objectives.

Ongoing product costs

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • SPDR® S&P MIDCAP 400 ETF Trust 0.24%
  • Invesco Aerospace & Defense ETF 0.58%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Health Care Select Sector SPDR® Fund 0.09%
  • Weighted costs total (per year) 0.16%

The total expense ratio (TER) of the portfolio is 0.16%, which is relatively low and cost-effective. This low-cost structure is advantageous for long-term investors as it helps in maximizing returns by minimizing fees. Keeping investment costs low is crucial for enhancing net returns. Regularly review the expense ratios of the holdings to ensure they remain competitive. While the current costs are reasonable, always be on the lookout for more cost-effective alternatives that do not compromise on quality or performance, thereby optimizing the overall investment strategy.

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