A tech-heavy portfolio with strong growth potential but limited diversification
Report created on Jan 4, 2025Risk profile
5/7
Diversification profile
2/5
Positions
-
QQ Invesco NASDAQ 100 ETF
QQQM - US46138G6492 50.00% -
VT Vanguard Total Stock Market Index Fund ETF Shares
VTI - US9229087690 50.00%
The portfolio consists of two ETFs, each making up 50% of the total allocation. This structure emphasizes a concentrated approach, focusing on broad market exposure through the Vanguard Total Stock Market ETF and technology-heavy exposure via the Invesco NASDAQ 100 ETF. While this composition offers a solid foundation for growth, it lacks diversification across asset classes. A more diversified portfolio typically includes a mix of stocks, bonds, and other assets to balance risk. Consider adding different asset types to enhance diversification and potentially reduce risk.
Growth
Historically, the portfolio has shown strong performance with a Compound Annual Growth Rate (CAGR) of 15.6%. This indicates a robust growth trajectory, outperforming many traditional benchmarks. However, the maximum drawdown of -30.14% highlights the potential for significant losses during market downturns. It's essential to remember that past performance is not indicative of future results. To mitigate potential risks, consider strategies like rebalancing or incorporating less volatile assets to cushion against sharp declines.
Projection
The forward projection using Monte Carlo simulation suggests a range of potential outcomes, with a median (50th percentile) return of 623.02%. This method uses historical data to model future performance, showing a wide range of possibilities. While these simulations indicate a high probability of positive returns, they are not guarantees. It's crucial to remain aware that market conditions can change, affecting future performance. Regularly reviewing and adjusting the portfolio based on updated market insights can help align it with your financial goals.
Asset classes
- Stocks 100%
The portfolio is heavily weighted towards stocks, with 99.88% allocation, leaving minimal exposure to other asset classes. This concentration in equities can lead to higher volatility, particularly during market downturns. In contrast, a well-diversified portfolio often includes bonds and other asset types to spread risk. To enhance stability, consider introducing bonds or alternative investments, which can provide a buffer against equity market fluctuations and contribute to a more balanced risk-return profile.
Sectors
- Technology 41%
- Consumer Discretionary 13%
- Telecommunications 12%
- Health Care 8%
- Financials 7%
- Industrials 6%
- Consumer Staples 5%
- Energy 2%
- Utilities 2%
- Basic Materials 2%
- Real Estate 2%
Sector allocation shows a significant concentration in technology, making up 40.81% of the portfolio. This tech-heavy orientation can drive growth, particularly in innovative markets, but also heightens exposure to sector-specific risks. Other sectors like consumer cyclicals and communication services are also prominent but less so. To mitigate sector-specific risks and enhance diversification, consider gradually shifting some allocation towards underrepresented sectors. This approach can help balance potential gains with risk management.
Regions
- North America 99%
- Europe Developed 1%
The portfolio's geographic exposure is overwhelmingly concentrated in North America, accounting for 98.62%. This limited international exposure may reduce diversification benefits and increase vulnerability to regional economic fluctuations. Global diversification can help spread risk and capture growth opportunities in emerging and developed markets outside North America. Consider increasing allocations to other regions to achieve a more balanced geographic distribution, which can potentially enhance returns and reduce regional risks.
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's current allocation may not be fully optimized on the Efficient Frontier, which represents the best possible risk-return trade-off. By adjusting the allocation between existing assets, the portfolio could potentially achieve a more favorable balance of risk and return. This involves finding the optimal mix that maximizes returns for a given level of risk. Regularly reviewing and rebalancing the portfolio can help maintain alignment with the Efficient Frontier and improve overall efficiency.
Dividends
- Invesco NASDAQ 100 ETF 0.60%
- Vanguard Total Stock Market Index Fund ETF Shares 1.30%
- Weighted yield (per year) 0.95%
The portfolio's dividend yield stands at 0.95%, with the Vanguard ETF contributing a higher yield of 1.3% compared to the Invesco ETF's 0.6%. While dividends are not the primary focus of this growth-oriented portfolio, they can provide a steady income stream and contribute to total returns. For investors seeking income, increasing exposure to higher-yielding assets might be beneficial. However, maintaining a balance between growth and income is crucial to align with long-term investment goals.
Ongoing product costs
- Invesco NASDAQ 100 ETF 0.15%
- 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 impressively low at 0.09%, reflecting cost-effective management. Lower costs can significantly enhance long-term returns by reducing the drag on performance. This cost efficiency is a strong advantage, allowing more of the portfolio's returns to be retained. While costs are well-managed, it's always worth exploring whether even lower-cost alternatives exist. However, the current cost structure aligns well with best practices for managing investment expenses.
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