Growth-Oriented US-Centric Portfolio with High Risk and Low Diversification Needs Optimization

Report created on Nov 24, 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 of four ETFs, with a significant tilt towards Invesco QQQ Trust and SPDR® Portfolio S&P 500 ETF, each holding 35%. The SPDR® Portfolio S&P 600 Small Cap ETF and Vanguard Total Stock Market Index Fund ETF Shares make up the remaining 30%. This allocation indicates a strong focus on large-cap US equities with a minor exposure to small caps. The portfolio's low diversity suggests potential vulnerability to market fluctuations in specific sectors or geographies, which might not align with a risk-averse investment strategy.

Growth Info

Historically, this portfolio has performed impressively with a CAGR of 15.37%, showcasing its growth potential. However, the maximum drawdown of -32.62% highlights the inherent risks associated with such a concentrated equity portfolio. The performance has been driven by just 36 days, indicating that the portfolio's returns are dependent on short bursts of market movements. This could be a concern for investors seeking more consistent returns, as it suggests volatility and reliance on market timing.

Projection Info

Using a Monte-Carlo simulation with 1,000 iterations, the portfolio shows a promising outlook. The simulations assume a hypothetical initial investment and predict a 50th percentile return of 543.34%, with an annualized return of 16.15%. However, the 5th percentile indicates a potential downside risk of only 84.24% return. This projection underscores the portfolio's potential for high returns but also highlights the volatility and risk associated with this growth-focused strategy.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted in stocks, with a staggering 99.88% allocation, and a negligible amount in cash. This concentration on equities suggests a high-risk, high-return strategy. While this can be advantageous in a bull market, it leaves the portfolio vulnerable during market downturns. Diversifying into other asset classes, such as bonds or real estate, could help balance the risk and provide a more stable return profile over time.

Sectors Info

  • Technology
    35%
  • Consumer Discretionary
    12%
  • Telecommunications
    10%
  • Financials
    10%
  • Health Care
    9%
  • Industrials
    9%
  • Consumer Staples
    5%
  • Real Estate
    3%
  • Energy
    3%
  • Basic Materials
    2%
  • Utilities
    2%

The portfolio is dominated by the technology sector, making up 35% of the total allocation. Other notable sectors include consumer cyclicals, communication services, and financial services. This sector concentration increases the portfolio's exposure to market fluctuations specific to these industries. A more balanced sector allocation could mitigate risk and enhance long-term stability. Diversifying into underrepresented sectors like utilities or basic materials could offer some protection against sector-specific downturns.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly concentrated in North America, with 98.78% of its assets. This US-centric focus exposes the portfolio to risks associated with regional economic changes or policy shifts. While the US market has historically provided strong returns, incorporating more international exposure could reduce geographic risk and capitalize on growth opportunities in other regions. A more global approach might help in achieving a more balanced and resilient portfolio.

Redundant positions Info

  • Invesco QQQ Trust
    Vanguard Total Stock Market Index Fund ETF Shares
    SPDR® Portfolio S&P 500 ETF
    High correlation

The portfolio's assets show high correlation, particularly among the Invesco QQQ Trust, Vanguard Total Stock Market Index Fund ETF Shares, and SPDR® Portfolio S&P 500 ETF. This correlation indicates that these assets tend to move in the same direction, offering limited diversification benefits. Reducing overlap by including less correlated assets could improve risk management and potentially enhance returns. A more diversified asset selection might help mitigate the impact of market volatility.

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, the portfolio should address the high correlation among its assets. Reducing overlap can enhance diversification and potentially improve returns. Moving along the efficient frontier could help achieve a more balanced risk-return profile. For a riskier portfolio, consider increasing exposure to equities or growth sectors. For a more conservative approach, incorporate more bonds or defensive sectors. Focusing on diversification and risk management can lead to better long-term outcomes.

Dividends Info

  • Invesco QQQ Trust 0.60%
  • SPDR® Portfolio S&P 500 ETF 1.20%
  • SPDR® Portfolio S&P 600 Small Cap ETF 1.70%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 1.10%

With a total dividend yield of 1.1%, the portfolio offers moderate income potential. The SPDR® Portfolio S&P 600 Small Cap ETF provides the highest yield at 1.7%, while the Invesco QQQ Trust offers the lowest at 0.6%. For investors seeking regular income, this yield might not be sufficient. Incorporating higher-yielding assets or dividend-focused funds could enhance the income component of the portfolio. Balancing growth and income could provide a more comprehensive investment strategy.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • SPDR® Portfolio S&P 500 ETF 0.02%
  • SPDR® Portfolio S&P 600 Small Cap ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.09%

The portfolio's total expense ratio (TER) is 0.09%, indicating low investment costs. This is beneficial for long-term growth, as lower costs mean more of the returns are retained by the investor. The SPDR® Portfolio S&P 500 ETF has the lowest cost at 0.02%, contributing to the overall cost efficiency. Maintaining low costs is crucial for maximizing returns, so continuing to focus on cost-effective investment options is recommended. Avoiding high-fee funds will help keep expenses in check.

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