By David Kreinces, 8/26/20 (updated)
Many investors are constantly searching for the world’s best exchange-traded fund (ETF) or investable benchmark. You may be surprised if you think the answer is the S&P 500 (SPY) or the Nasdaq 100 (QQQ).
Nasdaq-100 3x (TQQQ)
The historical performance data strongly favors the Nasdaq-100 3x (TQQQ) for core equity exposure. The unleveraged Nasdaq-100 (QQQ) appears to be the “next-generation S&P 500” and adding moderate leverage can be priceless at times. In fact, TQQQ returned 80x your money over the past 10-years, while the S&P 500 delivered just under 3x, or 285% in total return.
While many investors are unable to beat the S&P 500 long-term, TQQQ just delivered 28x the S&P 500 return. In addition, this mind-blowing performance was achieved through a low-cost, liquid, and diversified ETF. Thus, investing will never be the same.
American Dream ETF
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.”
Past performance can never guarantee future results, but a continuation of the TQQQ growth rate above would turn $500 into $2 million within 19 years. Even if the TQQQ rate of return falls by half, to 28% annualized, a $500 investment could still reach $2 million in 34 years. Given this extraordinary long-term growth potential, we named TQQQ the “American Dream ETF.”
Other leading leveraged ETFs include Technology 3x (TECL) and Semiconductors 3x (SOXL), as both produced spectacular returns this past decade, and we do occasionally trade the concentrated FANG 3x (FNGU). In fact, FNGU is currently up 426% over the past twelve months due to overweight exposure in top stocks such as Tesla (TSLA), Nvidia (NVDA), Netflix (NFLX), and Amazon (AMZN). However, we often prefer the Nasdaq-100 for broader diversification and extra liquidity, as well as a technology focus.
Legendary Innovation
For example, Tesla (TSLA), one of the most innovative companies on the planet, is currently 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 Tesla only appears somewhat close to being added to the S&P 500 even at the current market capitalization of $380 billion.
Risk Control
Leveraged ETFs can be extremely volatile, and many do not always work as expected. In fact, over just five weeks during the equity crash early this year, TQQQ fell by 73% while the unleveraged QQQ lost 31%. Regardless of your portfolio strategy or holdings, 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 Long-Term Treasury 3x (TMF). It is impressive to note that IT 3x delivered 38% annualized over the past 11 years, including a gain of 63% year-to-date through August 21.
Extra Retirement Nest Eggs
Clearly, the technology sector benefits greatly from the strong trends in machine learning and telecommuting. The extraordinary performance potential in TQQQ also justifies extra volatility at times. As we explain in our new book, diversification is a free lunch, and leveraged diversification can deliver many extra retirement nest eggs.
ETF PM has long positions in TQQQ, QQQ, TSLA, VOO, UPRO, FNGU, and TMF.
Contact us today to learn more.
