Growth-Oriented Portfolio with High Risk and Low Diversification Focused on U.S. Equities

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 suitable for investors with a high-risk tolerance and a focus on long-term capital appreciation. They should be comfortable with market volatility and have a growth-oriented mindset. Such investors typically have a longer investment horizon, allowing them to ride out short-term market fluctuations. They are less concerned with generating income and more interested in achieving substantial growth over time. Diversification may not be their primary concern, as they are willing to accept concentrated positions for the potential of higher returns.

Positions

  • Vanguard S&P 500 ETF
    VOO - US9229083632
    50.00%
  • Invesco QQQ Trust
    QQQ - US46090E1038
    30.00%
  • SPDR® Portfolio S&P 500 ETF
    SPLG - US78464A8541
    20.00%

This portfolio is heavily concentrated in U.S. equities, with three ETFs making up the entirety of the investments. The Vanguard S&P 500 ETF dominates at 50%, followed by the Invesco QQQ Trust at 30%, and the SPDR® Portfolio S&P 500 ETF at 20%. This setup provides significant exposure to large-cap U.S. companies, particularly in the technology sector. While this concentration can lead to substantial growth, it also introduces risks due to lack of diversification. Broadening the asset classes and including international equities or bonds could help balance the risk and potentially enhance returns.

Growth Info

Historically, the portfolio has delivered impressive returns, with a compound annual growth rate of 15.82%. However, this growth comes with volatility, as evidenced by a maximum drawdown of -31.81%. The concentration in a few ETFs means that the portfolio's performance is largely tied to the U.S. market, particularly the tech-heavy Nasdaq. While the historical performance is strong, it's important to consider that past performance is not indicative of future results. Diversifying the portfolio could help mitigate the impact of any future market downturns.

Projection Info

Using a Monte Carlo simulation with 1,000 scenarios, the portfolio shows a wide range of potential outcomes, assuming a hypothetical initial investment. The median simulation suggests a return of 653.01%, while the 5th percentile indicates a minimum return of 128.4%. This highlights the portfolio's potential for significant growth, but also underscores its volatility. The simulation's annualized return of 17.23% is promising, yet the portfolio's high-risk nature means that actual results could vary dramatically. Introducing more asset classes could stabilize future projections and reduce uncertainty.

Asset classes Info

  • Stocks
    100%
  • Cash
    0%

The portfolio is overwhelmingly invested in stocks, representing 99.91% of the total allocation, with a negligible amount in cash. This heavy stock allocation aligns with a growth-oriented strategy but increases exposure to market volatility. A more balanced approach might include adding fixed-income securities or alternative investments to reduce risk and provide more stable returns. While stocks offer high growth potential, diversifying into other asset classes can provide a cushion during market downturns and help achieve a more consistent performance over time.

Sectors Info

  • Technology
    38%
  • Consumer Discretionary
    11%
  • Telecommunications
    11%
  • Health Care
    9%
  • Financials
    9%
  • Industrials
    6%
  • Consumer Staples
    6%
  • Energy
    3%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    2%

Sector allocation is heavily skewed towards technology, which accounts for 38.49% of the portfolio. Other sectors like consumer cyclicals, communication services, and healthcare have moderate representation. This concentration in tech can lead to strong growth during favorable market conditions but may also result in significant volatility. To mitigate sector-specific risks, consider spreading investments across a broader range of industries. By diversifying sector exposure, the portfolio can better withstand sector downturns and capitalize on growth opportunities in other areas.

Regions Info

  • North America
    99%
  • Europe Developed
    1%
  • Latin America
    0%
  • Asia Emerging
    0%
  • Asia Developed
    0%

Geographically, the portfolio is almost entirely focused on North America, with 98.86% of assets allocated there. This U.S.-centric approach can limit exposure to global growth opportunities and increase vulnerability to domestic economic shifts. Including international equities from developed and emerging markets could enhance diversification and reduce regional risk. A more globally diversified portfolio can capture growth from different economic cycles and provide a hedge against potential U.S. market downturns.

Redundant positions Info

  • Vanguard S&P 500 ETF
    SPDR® Portfolio S&P 500 ETF
    High correlation

The portfolio's assets are highly correlated, particularly between the Vanguard S&P 500 ETF and the SPDR® Portfolio S&P 500 ETF. This high correlation suggests that these assets tend to move in the same direction, offering limited diversification benefits. Reducing the overlap by including uncorrelated assets can improve diversification and reduce overall portfolio risk. Consider incorporating assets that have historically shown lower correlation with U.S. equities, which can help smooth out returns and reduce volatility.

Dividends Info

  • Invesco QQQ Trust 0.60%
  • SPDR® Portfolio S&P 500 ETF 1.20%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 1.02%

The portfolio's dividend yield is modest at 1.02%, with the Invesco QQQ Trust contributing the least at 0.6%. While dividends provide a steady income stream, the focus here is clearly on capital appreciation rather than income generation. For investors seeking higher income, reallocating some funds into dividend-focused investments could be beneficial. However, given the growth orientation, maintaining a balance between growth and income will be key to achieving long-term financial goals.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • SPDR® Portfolio S&P 500 ETF 0.02%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.08%

The portfolio's total expense ratio (TER) is relatively low at 0.08%, with the SPDR® Portfolio S&P 500 ETF being the most cost-effective at 0.02%. Low costs are advantageous as they help maximize net returns. It's crucial to continue monitoring expense ratios and consider lower-cost alternatives if available. Keeping investment costs low is a fundamental principle of successful investing, as it ensures that more of the portfolio's returns are retained by the investor over time.

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.

Before optimizing the portfolio, addressing the issue of overlapping assets is crucial, as they offer little diversification benefit. By reducing highly correlated assets, the portfolio can improve its risk-return profile. For those seeking a riskier approach, moving along the efficient frontier towards higher equity allocation may be beneficial. Conversely, a more conservative stance could involve increasing exposure to bonds or other low-risk assets. Understanding the efficient frontier helps in making informed decisions to align the portfolio with personal risk preferences and financial goals.

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