By David Kreinces, 6/1/20
When making investment decisions, you may find yourself searching for the world’s best exchange-traded fund (ETF), or investable benchmark. If you think the answer is the S&P 500 (VOO), or the Nasdaq 100 (QQQ), you may be surprised.
3x Nasdaq 100
The historical performance data strongly favors the technology heavy 3x Nasdaq 100 (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, TQQQ returned almost 43% annualized over the past 10.4 years, or 4,042% in total return. The S&P 500 returned 12% annualized or 235%.
This means TQQQ delivered 17x the return of the S&P 500, sensational performance, especially since it was achieved through a low-cost, liquid, and diversified ETF. Thus, Wall Street and investing will never be the same.
American Dream ETF
While past performance can never guarantee future results, the current rate of growth in TQQQ would turn $500 into $2 million within 23 years. Given TQQQ’s growth potential long-term, we are now calling it the “American Dream ETF.” Other great 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 overall due to its combination of broader diversification and extra liquidity, as well as a technology focus.
Legendary Innovation
For example, Tesla (TSLA), the most innovative company on the planet, is almost a 2% 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 the other technology ETFs above, and even at the current market capitalization above $150 billion, Tesla only appears somewhat close to being added to the S&P 500.
Risk Control
Leveraged ETFs can be extremely volatile and many do not always work as expected. In fact, over just five weeks during the coronavirus lockdown last quarter, TQQQ fell by 73% while the unleveraged QQQ lost 31%. Regardless of your portfolio strategy, components, or balance, investors should always be prepared to raise cash and protect their principal as needed.
Investable Benchmarks
To reduce risk, the Income and Technology 3x (IT 3x) aggressive growth investable benchmark balances TQQQ exposure with the 3x Long-Term Treasury bond ETF (TMF). It is impressive to note that IT 3x delivered a return of 36% annualized this past decade, including a 26% gain over the first five months of 2020.
Free Retirement Nest Egg
The technology sector benefits greatly from the strong trends in artificial intelligence and telecommuting. Clearly, the extraordinary performance potential in TQQQ justifies extra volatility at times. As we explain in our new book, diversification is a free lunch, and leveraged diversification can be a free retirement nest egg.
ETF PM has long positions in TQQQ, QQQ, TSLA, VOO, UPRO, and TMF.
Contact us today to learn more.
