A tech-heavy growth portfolio with high risk and limited geographic diversification

Report created on Jan 6, 2025

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

This portfolio is heavily weighted towards ETFs, particularly with a strong focus on technology. The Vanguard Growth Index Fund ETF Shares and Vanguard Information Technology Index Fund ETF Shares make up a significant portion of the portfolio. While this reflects a growth-oriented strategy, it lacks diversification across different asset classes. Compared to more balanced portfolios, this composition leans towards high-risk, high-reward investments. To achieve a more balanced approach, consider adding bonds or other asset classes to reduce volatility and enhance stability.

Growth Info

Historically, the portfolio has performed impressively, with a Compound Annual Growth Rate (CAGR) of 23.81%. This indicates strong growth potential, driven largely by the tech sector. However, the maximum drawdown of -39.27% underscores the portfolio's vulnerability to market downturns. While past performance is not indicative of future results, it highlights the potential for significant gains and losses. To mitigate this risk, consider diversifying into less volatile sectors or asset classes to smooth out returns over time.

Projection Info

Monte Carlo simulations, which use historical data to predict future outcomes, suggest a wide range of potential returns. With an annualized return of 26.77% from simulations, the portfolio could see substantial growth. However, the reliance on past data means these projections are not guaranteed. The 5th percentile projection of 195.29% indicates possible lower outcomes, emphasizing the need for caution. Consider adjusting asset allocations to balance the potential for growth with acceptable risk levels, ensuring alignment with your financial goals.

Asset classes Info

  • Stocks
    100%

The portfolio is overwhelmingly concentrated in stocks, with nearly 100% allocation, and a negligible cash component. This lack of asset class diversity can increase risk, especially during market downturns. A more balanced portfolio typically includes bonds or other fixed-income assets, which can provide stability and reduce overall volatility. To improve diversification, consider incorporating different asset classes, such as bonds or real estate, which can offer a buffer against stock market fluctuations and enhance long-term performance.

Sectors Info

  • Technology
    63%
  • Telecommunications
    9%
  • Consumer Discretionary
    8%
  • Health Care
    5%
  • Financials
    4%
  • Industrials
    3%
  • Consumer Staples
    3%
  • Basic Materials
    1%
  • Energy
    1%
  • Real Estate
    1%
  • Utilities
    1%
  • Consumer Discretionary
    1%

The portfolio is heavily concentrated in the technology sector, accounting for over 62% of the allocation. While tech has been a strong performer, such concentration can lead to heightened volatility, especially in times of sector-specific downturns. Compared to a more diversified sector allocation, this portfolio is less insulated against sector-specific risks. To mitigate these risks, consider diversifying into other sectors, such as healthcare or consumer goods, which can provide stability and reduce reliance on a single industry's performance.

Regions Info

  • North America
    99%

Geographically, the portfolio is almost entirely focused on North America, with over 99% exposure. This lack of international diversification can increase vulnerability to regional economic downturns. A more balanced geographic allocation typically includes exposure to Europe, Asia, and emerging markets, which can offer growth opportunities and risk mitigation. To enhance geographic diversification, consider reallocating a portion of the portfolio to international markets, which can provide a hedge against North American economic fluctuations.

Redundant positions Info

  • Vanguard Information Technology Index Fund ETF Shares
    Vanguard Growth Index Fund ETF Shares
    Invesco NASDAQ 100 ETF
    Invesco QQQ Trust
    High correlation
  • VANGUARD TOTAL STOCK MARKET INDEX FUND ADMIRAL SHARES
    Vanguard S&P 500 ETF
    High correlation

The portfolio contains several highly correlated assets, particularly among technology-focused ETFs. High correlation means these assets tend to move together, reducing diversification benefits and potentially increasing risk during market downturns. To enhance diversification, consider replacing some of these correlated assets with others that have lower correlation, which can help spread risk and improve overall portfolio resilience. Reducing overlap can lead to a more balanced and robust investment strategy.

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.

The portfolio could benefit from optimization using the Efficient Frontier, which seeks the best risk-return ratio. Currently, the portfolio's high correlation among assets limits diversification benefits. By rebalancing and potentially including less correlated assets, the portfolio can achieve a more optimal position on the Efficient Frontier. This involves reallocating within existing asset classes to enhance the risk-return profile, ensuring the portfolio is well-positioned for future growth while managing risk effectively.

Dividends Info

  • Invesco QQQ Trust 0.60%
  • Invesco NASDAQ 100 ETF 0.60%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • VANGUARD TOTAL STOCK MARKET INDEX FUND ADMIRAL SHARES 1.30%
  • Vanguard Growth Index Fund ETF Shares 0.50%
  • Weighted yield (per year) 0.63%

The portfolio's dividend yield is relatively low at 0.63%, reflecting its growth-oriented focus. While dividends can provide a steady income stream, this portfolio prioritizes capital appreciation over income generation. For investors seeking income, a higher dividend yield might be desirable. To enhance income potential, consider incorporating dividend-focused investments, which can provide regular cash flow and contribute to overall returns, especially during periods of market volatility.

Ongoing product costs Info

  • Invesco QQQ Trust 0.20%
  • Invesco NASDAQ 100 ETF 0.15%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • VANGUARD TOTAL STOCK MARKET INDEX FUND ADMIRAL SHARES 0.04%
  • Vanguard Growth Index Fund ETF Shares 0.04%
  • Weighted costs total (per year) 0.07%

Portfolio costs are impressively low, with a Total Expense Ratio (TER) of 0.07%. Low costs can significantly enhance long-term returns by minimizing the drag on performance. This efficient cost structure aligns well with best practices for cost-effective investing. Maintaining a focus on low-cost investments is crucial for optimizing returns. Continue to monitor expense ratios and consider replacing higher-cost assets with equally effective lower-cost alternatives to maintain this advantage.

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