In this ETF Battle, Kreinces highlights that the Nasdaq-100 is the “next-generation” S&P 500, and leveraged ETFs, such as the Nasdaq-100 3x (TQQQ), are the most important new investment solutions.
Over the trailing 10-years through mid-July 2020, the Nasdaq-100 (QQQ) returned 531%, or 20% annualized, which was more than double the S&P 500 (SPY) total return of 259%, or 14% annualized. However, the most impressive performance was delivered by the Nasdaq-100 3x which delivered a shockingly strong total return of 5,933%, or 51% annualized.
While the annualized return of TQQQ was only 2.5x larger than the unleveraged return of QQQ, the 10-year total return was over 11x greater due to the magic of compounding. This means that leveraged ETFs do not need to deliver their full target annual return multiple in order to be useful products at times. At ETF PM, we believe that using moderate leverage on strategically balanced indexes, as shown in the investable benchmarks, will prove to be far more effective long-term than employing old-fashioned unleveraged security selection.
Harry Markowitz explained that “diversification is a free lunch” and the investable benchmarks show that leveraged diversification can produce a carton of extra retirement nest eggs. Read more about these revolutionary core portfolios in our new book: “Investable Benchmarks: A Guide to ETFs, Technology, and Leverage.”
Given the extraordinary opportunity for investors in certain leading leveraged ETFs, we are now calling TQQQ the “American Dream ETF!” Binge-watch all of ETF PM’s appearances on ETF Battles and let us know which ETFs you want to see in the next episode!