Hello fellow investors,
Happy New Year! It has been a wild start to the year with a chunky pullback and volatility in full swing. For me, I personally enjoy the market drama and the opportunity to sit by screens all day and purchase stocks on sale... but that's not everybody's cup of tea. Some investors can't stomach this volatility and that's totally fine. The good news? There is still a fairly easy & safe way to invest and build wealth off of big tech without these wild swings.
How? With QQQ.
This is one of my favorite investment picks, and I've been a consistent buyer for over a decade. My enthusiasm for big tech remains as strong as ever, given that nearly every major technological breakthrough or innovative product seems to originate from the tech behemoths like Google, Apple, Amazon, Meta, Nvidia, and others.
So what exactly is QQQ?
QQQ is an exchange-traded fund (ETF) that primarily aims to track the performance of the Nasdaq-100 Index. This index includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization. The ETF is managed by Invesco Capital Management and is popular for its exposure to large technology companies, making it a superb choice for investors looking to capitalize on the growth of the tech sector.
Here are the top 10 holdings of QQQ as of late 2024, which collectively make up a substantial portion of the ETF's total assets:
Apple Inc. (AAPL): 9.23%
Nvidia Corporation (NVDA): 7.88%
Microsoft Corporation (MSFT): 7.74%
Broadcom Inc. (AVGO): 6.31%
Amazon.com Inc. (AMZN): 5.63%
Tesla Inc. (TSLA): 4.86%
Meta Platforms Inc. (META): 4.85%
Alphabet Inc. Class A (GOOGL): 2.68%
Costco Wholesale Corporation (COST): 2.61%
Alphabet Inc. Class C (GOOG): 2.57%
These holdings reflect QQQ's heavy emphasis on technology and consumer services, showcasing its role as a tech-heavy fund. This composition makes QQQ an attractive option for investors looking to gain broad exposure to major technology firms and other high-growth sectors, such as consumer electronics and e-commerce, which are pivotal in today's (and tomorrow's) digital economy.
It's also worth mentioning that QQQ's composition is dynamically rebalanced every quarter. This ensures that rising studs in the tech sector, such as Palantir or MicroStrategy, are integrated into the ETF once they make significant waves on the Nasdaq—a recent adjustment influenced by the heat surrounding these companies exemplifies this process.
In essence, investing in QQQ is like having a stake in all the major tech giants by purchasing this one symbol. This diversification not only spreads out your risk but also aligns your portfolio with the pulse of technological innovation.
Why is QQQ worth investing in?
Its my strong opinion that tech firms continue to be attractive investment opportunities for three compelling reasons:
1. Innovation and Research & Development (R&D): Technology companies are at the forefront of innovation, consistently pushing the boundaries of what's possible. They invest heavily in research and development to create new products and improve existing ones, driving growth through technological advancements. This continual innovation cycle helps maintain their competitive edge and opens up new markets, from advancements in artificial intelligence and machine learning to breakthroughs in quantum computing and biotechnology. Let's face it, the big tech companies have the capital and the money that small firms don't. Even if there is some new tech breakthrough, if its developed by a small firm outside of big tech then it will likely be big tech that buy them up before you hear about it.
2. Digital Transformation: The ongoing digital transformation across all sectors of the economy presents significant growth opportunities for tech companies. As more businesses and services move online—from cloud computing and digital payments to telehealth and remote work solutions—tech companies that provide these enabling technologies are poised to benefit. This trend is likely to accelerate, with technology becoming increasingly integral to operations in sectors like finance, healthcare, education, and manufacturing.
3. Global Reach and Scalability: Many tech firms operate on business models that allow them to scale rapidly and efficiently across global markets. With the internet and cloud-based services, a tech company can expand its reach without the substantial capital expenditures that traditional businesses might incur. This scalability not only boosts growth prospects but also allows tech companies to adapt quickly to global demands and changing market conditions. A lot of tech revolves around software. Once software is developed, selling it to customers is far easier to scale as it requires less effort to produce. It's one of the reasons I'm so bullish on PLTR, because its very easy for them to sell an already developed software to new clients.
These factors collectively suggest that technology companies could continue to experience robust growth over the next decade, making them compelling candidates for investment.
How has QQQ performed historically?
Let's crunch some numbers on QQQ's performance over the last decade.
Think back to about 10 years ago when QQQ was priced at around $100 per share. Fast forward to today, and that price has skyrocketed to roughly $515 per share.
So, if you'd dropped $10,000 into QQQ 10 years back, you'd have picked up about 100 shares. Those 100 shares are now worth around $51,500. That’s a 400% increase—not bad, right?
If you're currently holding 100 shares of QQQ, valued at about $515 each, your stash is worth about $51,500. Wondering what the next 10 years might look like? If QQQ pulls off another 400% gain like it did in the last decade, you could be looking at an investment worth around $206,000. No guarantees, of course—it could go higher or it might dip. But if the past can teach us anything, it's that QQQ has some serious potential.
Keep in mind, though, that past performance doesn’t always predict the future. There will be pullbacks and panic on the market from time to time. But overall, I trust in the general tech sector to always bounce back and reach new highs.
Why do I think QQQ is fairly safe?
First and foremost, QQQ's focus on the Nasdaq-100—a collection of some of the largest and most innovative companies in the world—provides a level of security. These companies are not only leaders in their fields but also have substantial financial resources, making them more resilient to economic downturns compared to smaller entities.
Additionally, the tech sector's robust growth trajectory helps cushion against market volatility. Despite occasional downturns, technology as a sector has shown remarkable resilience and an ability to outperform the broader market over the long term. The consistent demand for technological advancements and digital services provides a steady stream of revenue that supports these companies through various market conditions.
Lastly, the diversification within the tech giants included in QQQ means you're not putting all your eggs in one basket. While it's true that QQQ is tech-heavy, it also includes companies from various sub-sectors within technology, like cloud computing, artificial intelligence, digital payments, and more. This diversification helps mitigate the risk if one particular area faces challenges.
In summary, the combination of being invested in leading companies, the inherent growth potential of the tech sector, and the diversification across different technology domains makes QQQ a fairly safe bet for those looking to invest in technology without the extreme volatility that can come with individual tech stocks. It's a cornerstone in my portfolio, offering both the excitement of tech and the stability of established, high-performing companies. This balance is why I continue to trust and recommend QQQ as a sound investment vehicle.
Closing Thoughts
Alright. QQQ offers a compelling alternative to traditional saving and investment methods, especially when you consider the types of returns it has generated over the past decade. Keeping your money in a bank or investing in real estate simply wouldn't yield anywhere near the same level of return. Do you know anybody that bought a house in 2015 for $100,000, did nothing for 10 years then sold it for $500,000? I doubt it.
Furthermore, as I have have previously written, with governments around the world continuing to print money, leading to currency debasement, inflation becomes a tangible threat to the purchasing power of our savings. In such an environment, QQQ stands out as a strategic tool to safeguard against inflation and help maintain the value of our investments. By focusing on high-growth technology companies that are often less affected by inflationary pressures than more traditional industries, QQQ provides a robust platform for growth and a hedge against the erosion of value caused by global financial policies.
So for those looking to both protect and grow their wealth in uncertain times, QQQ represents not just an investment in some of the most dynamic companies on the planet, but also an investment in the future of technology and innovation.
Fin.
