High-Risk Tech-Heavy Portfolio Lacks Diversification and Overlaps in Assets

Report created on Nov 26, 2024

Risk profile Info

6/7
Aggressive
Less risk More risk

Diversification profile Info

1/5
Single-Focused
Less diversification More diversification

Positions

The portfolio is heavily concentrated with a 62.5% allocation in ServiceNow Inc, making it highly dependent on the performance of this single stock. NVIDIA Corporation also holds a significant portion at 17.86%, further emphasizing a tech-centric focus. The rest of the portfolio is spread across various ETFs, with minimal allocations in non-tech sectors. This composition suggests a single-focused, aggressive approach, with limited exposure to other asset classes or sectors. To mitigate risk, consider diversifying into other sectors and asset classes to achieve a more balanced portfolio.

Growth Info

Historically, the portfolio has shown impressive performance with a CAGR of 41.48%. However, this high return comes with a significant risk, evidenced by a maximum drawdown of -53.88%. Such volatility indicates that while the portfolio has the potential for high returns, it is also susceptible to substantial losses. This kind of performance can be attractive but requires a strong risk tolerance. To maintain these returns while reducing risk, consider diversifying the asset allocation and reducing dependency on a few high-performing stocks.

Projection Info

Using a Monte Carlo simulation, the portfolio's future performance was projected with 1,000 iterations. The results show a wide range of potential outcomes, with a 5th percentile value of 444.58% and a 67th percentile value of 8,355.82%. This indicates the portfolio's potential for substantial growth but also highlights the uncertainty and risk involved. The simulation's annualized return of 38.71% suggests a promising future, yet underscores the need for diversification to manage risk. A diversified approach could help achieve more stable and predictable returns over time.

Asset classes Info

  • Stocks
    99%
  • Other
    1%

The portfolio is overwhelmingly invested in stocks, with 99.31% allocated to this asset class, leaving minimal exposure to other asset classes such as bonds or commodities. This lack of diversification increases the portfolio's risk, as it heavily relies on the stock market's performance. To create a more balanced investment strategy, consider incorporating other asset classes that can provide stability and reduce overall volatility. Diversifying into bonds or alternative investments can help cushion the portfolio against market downturns.

Sectors Info

  • Technology
    89%
  • Consumer Discretionary
    2%
  • Telecommunications
    2%
  • Financials
    2%
  • Health Care
    1%
  • Industrials
    1%
  • Consumer Staples
    1%
  • Energy
    1%

Technology dominates the portfolio, accounting for 89.48% of the sector allocation. This heavy concentration in one sector makes the portfolio vulnerable to industry-specific risks and fluctuations. While tech has been a high-performing sector, relying too heavily on it can lead to significant losses if the sector underperforms. To mitigate this risk, consider diversifying into other sectors such as healthcare, consumer goods, or financial services. A more balanced sector allocation can help reduce volatility and improve long-term performance.

Regions Info

  • North America
    98%

Geographically, the portfolio is primarily focused on North America, with 98.42% of assets allocated in this region. This concentration limits exposure to international markets and potential growth opportunities outside of North America. While the U.S. market has been strong, diversification into other regions can provide access to different economic cycles and reduce regional risk. Consider expanding investments into emerging markets or developed regions outside North America to enhance diversification and capture global growth potential.

Redundant positions Info

  • Vanguard S&P 500 ETF
    Invesco QQQ Trust
    High correlation

The portfolio exhibits high correlations between certain assets, particularly the Vanguard S&P 500 ETF and Invesco QQQ Trust. These correlations indicate that these assets tend to move in the same direction, offering little diversification benefit. Redundant holdings can increase risk without adding value. To optimize the portfolio, focus on reducing overlapping assets and incorporating investments with low correlations. This approach can improve diversification and enhance risk-adjusted returns by reducing exposure to similar market movements.

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, focus on reducing overlapping assets that offer little diversification benefit. By removing highly correlated assets, you can enhance the portfolio's diversification and risk-adjusted returns. To achieve a riskier portfolio, increase the allocation to high-growth, volatile assets. Conversely, for a more conservative approach, shift towards stable, income-generating investments. Moving along the efficient frontier can help align the portfolio with your risk tolerance and financial goals, ensuring a balance between risk and return.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Invesco QQQ Trust 0.60%
  • VanEck Semiconductor ETF 0.40%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 0.17%

The portfolio's overall dividend yield is relatively low at 0.17%, reflecting its focus on growth stocks rather than income-generating assets. While growth stocks can offer substantial capital appreciation, incorporating higher-dividend-paying assets could provide a more balanced return profile. Consider adding investments with stable dividend yields to enhance income generation and reduce reliance on capital gains. This strategy can help smooth out returns and provide a steady income stream, particularly during market downturns.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • SPDR® Gold Shares 0.40%
  • Invesco QQQ Trust 0.20%
  • VanEck Semiconductor ETF 0.35%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.04%

The portfolio's total expense ratio (TER) is low at 0.04%, indicating cost-effective management. However, individual ETF costs vary, with the SPDR Gold Shares having the highest expense at 0.4%. Keeping investment costs low is crucial for maximizing returns, as high fees can erode gains over time. Regularly review and compare the expense ratios of holdings to ensure they align with your investment strategy. Consider reallocating to lower-cost alternatives if possible, while maintaining the desired exposure and diversification.

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