High-Risk Tech-Heavy Portfolio with Low Diversification and Overlapping Assets Needs Optimization

Report created on Nov 26, 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 entirely of ETFs, each holding a 10% share. This uniform allocation indicates a lack of diversification, particularly as the portfolio is heavily weighted towards technology-focused ETFs. While ETFs can offer broad exposure, the current selection leans heavily on growth and technology sectors. This composition may lead to higher volatility due to significant exposure to a single sector. A more diversified approach could help spread risk across different sectors and asset classes, potentially stabilizing returns over time.

Growth Info

Historically, the portfolio has shown a strong Compound Annual Growth Rate (CAGR) of 23.82%, reflecting its aggressive growth focus. However, this comes with a significant downside risk, as evidenced by a maximum drawdown of -48.93%. This means that while the portfolio has the potential for high returns, it also carries the risk of substantial losses. To mitigate this risk, it might be wise to consider incorporating more defensive assets or sectors that can provide stability during market downturns.

Projection Info

Using a Monte Carlo simulation, which models potential future performance by simulating a wide range of possible outcomes, the portfolio shows a median projected growth of 1,391.36%. This suggests a strong potential for growth, but the simulation also highlights the importance of preparing for variability. With a high number of simulations showing positive returns, the portfolio is positioned for success, yet it remains crucial to manage risk, possibly by diversifying into non-correlated assets.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stock assets, with a negligible amount in cash. This heavy stock allocation aligns with a high-risk, high-reward strategy. While stocks tend to offer higher returns over the long term, they also introduce greater volatility. Introducing other asset classes, such as bonds or real estate, could help balance the risk and provide a more stable income stream. This could be particularly beneficial during periods of stock market volatility.

Sectors Info

  • Technology
    58%
  • Consumer Discretionary
    14%
  • Telecommunications
    6%
  • Financials
    5%
  • Health Care
    5%
  • Industrials
    5%
  • Consumer Staples
    3%
  • Energy
    2%
  • Basic Materials
    1%

The portfolio's sector allocation is highly concentrated, with 58.39% in technology. Other sectors like consumer cyclicals and communication services contribute smaller portions, but the dominance of technology presents a risk if this sector underperforms. Diversifying across a broader range of sectors can help mitigate sector-specific risks and improve overall portfolio resilience. It’s important to consider how different sectors react to economic cycles and adjust the allocation to align with long-term goals.

Regions Info

  • North America
    100%

Geographically, the portfolio is overwhelmingly invested in North America, with 99.57% exposure. This lack of geographic diversity could make the portfolio vulnerable to region-specific risks. While North American markets have performed well historically, diversifying into other regions could provide exposure to different economic growth drivers and reduce dependency on a single market. Considering global diversification could enhance the portfolio's ability to weather regional economic downturns.

Redundant positions Info

  • iShares U.S. Technology ETF
    Technology Select Sector SPDR® Fund
    Vanguard Russell 1000 Growth Index Fund ETF Shares
    Direxion Daily S&P 500® Bull 2X Shares
    Vanguard Information Technology Index Fund ETF Shares
    Schwab U.S. Large-Cap Growth ETF
    iShares Russell Top 200 Growth ETF
    High correlation

The portfolio exhibits high correlations among several of its assets, particularly within the technology sector. This means that these assets tend to move in the same direction, which can amplify both gains and losses. Reducing correlations by selecting assets that perform differently in varying market conditions can enhance diversification. This approach can help smooth returns and reduce the impact of sector-specific downturns, leading to a more balanced risk-return profile.

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, addressing the issue of overlapping and highly correlated assets should be a priority. By reducing these redundancies, the portfolio can achieve better diversification and risk management. Moving along the efficient frontier, investors can adjust their portfolios to be riskier or more conservative. For a riskier portfolio, focus on growth-oriented assets, while for a more conservative approach, consider increasing exposure to defensive sectors or asset classes like bonds.

Dividends Info

  • iShares U.S. Home Construction ETF 0.40%
  • iShares Russell Top 200 Growth ETF 0.50%
  • iShares U.S. Technology ETF 0.40%
  • Schwab U.S. Dividend Equity ETF 3.30%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • Direxion Daily S&P 500® Bull 2X Shares 0.70%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard Russell 1000 Growth Index Fund ETF Shares 0.60%
  • Technology Select Sector SPDR® Fund 0.70%
  • Weighted yield (per year) 0.76%

The portfolio's dividend yield is relatively low at 0.76%, with most ETFs offering minimal yield except for the Schwab U.S. Dividend Equity ETF at 3.3%. This suggests a focus on capital appreciation over income generation. Investors seeking regular income might consider increasing the allocation to dividend-focused assets. Balancing growth with income can provide a more consistent cash flow and help offset potential capital losses during market volatility.

Ongoing product costs Info

  • iShares U.S. Home Construction ETF 0.40%
  • iShares Russell Top 200 Growth ETF 0.20%
  • iShares U.S. Technology ETF 0.40%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • Direxion Daily S&P 500® Bull 2X Shares 0.61%
  • ProShares Ultra Semiconductors 0.95%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard Russell 1000 Growth Index Fund ETF Shares 0.08%
  • Technology Select Sector SPDR® Fund 0.09%
  • Weighted costs total (per year) 0.29%

The portfolio's total expense ratio (TER) is 0.29%, which is fairly low, reflecting cost-effective management. However, some ETFs have higher individual expense ratios, such as the ProShares Ultra Semiconductors at 0.95%. Keeping costs low is crucial for maximizing net returns over time. Regularly reviewing and potentially replacing high-cost funds with more cost-efficient alternatives can help maintain a low TER and improve overall portfolio performance.

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