By David Kreinces, 11/30/22 (updated)
Nasdaq-100 3x (TQQQ)
The historical performance data strongly favors the technology heavy Nasdaq-100 3x (TQQQ) for core equity exposure. The unleveraged Nasdaq 100 (QQQ) is the “next-generation S&P 500” and adding moderate leverage can be priceless at times. In fact, over the past decade, TQQQ returned 36% annualized, or 2,077% in total return. The S&P 500 delivered 13% annualized, or 248% in total return.
This means TQQQ returned 8x the S&P 500, sensational performance, especially since it was achieved through a low-cost, liquid, and diversified ETF. Thus, investing will never be the same.
Past performance can never guarantee future results, or even positive results. However, investors should know that the current growth rate in TQQQ would turn $500 into $2 million in 27 years. Even if this growth rate falls by half to 18% annualized, a $500 seed investment in TQQQ could still reach $2 million in 50 years.
Given the potential growth in technology long-term, we call TQQQ the “American Dream ETF.” Other top leveraged technology ETFs include Technology 3x (TECL) and Semiconductors 3x (SOXL), as both had spectacular returns this past decade. However, we prefer the Nasdaq-100 3x due to its combination of broader diversification and extra liquidity, as well as a technology focus.
In my opinion, leveraged ETFs are the future of investing in many respects. Just as Max Plank explained that “science progresses one funeral at a time,” we believe that “finance progresses one index at a time.”
For example, we believe Tesla (TSLA) is the most innovative company on the planet, and the stock is now a 3% weighting in the Nasdaq 100 since being added in 2013. Tesla could potentially become the largest public company in the world and missing this stock in your portfolio could make a huge difference. However, Tesla is not a component in TECL or SOXL, and it is just a 1.5% weighting in the S&P 500.
Leveraged ETFs can be extremely volatile and many do not always work as expected. In fact, over just five weeks during the Coronavirus Crash in 2020, TQQQ fell by 73% while the unleveraged QQQ lost 31%. Regardless of your portfolio strategy, components, or balance, investors should always be prepared to sell positions and raise cash to protect their principal as needed.
To reduce risk, the Income and Technology 3x (IT 3x) aggressive growth investable benchmark balances TQQQ exposure with the Long-Term Treasury 3x bond ETF (TMF). It is impressive to note that IT 3x delivered 18% annualized over the past 10.9 years, even with a decline of 71% year-to-date through November ‘22.
Free Retirement Nest Egg
Clearly, the extraordinary performance potential in TQQQ justifies extra volatility at times. In addition, the technology sector benefits greatly from the strong trends in artificial intelligence. As machines ascend to thousands of IQ points, people may need to clone their investment income to replace labor income.
Perhaps each person should own the technology matrix and have geniuses like Elon Musk working for them. As we explain in our book, “Investable Benchmarks,” diversification is a free lunch, and leveraged diversification can be a free retirement nest egg.
Currently, ETF PM does not have any long positions in TQQQ in order to protect principal temporarily.
Contact us today to learn more.