No one knows for sure what the market will do in 2023, but long-term investors do know one thing: The bear market will eventually end, and a new bull market will begin.
That's been the case with every bear market in U.S. history and includes calamities like the Great Depression and both World Wars, as well as more recent market crashes like the great financial crisis and the coronavirus pandemic.
If you're nervous about buying stocks, that's understandable after last year's rout. Picking stocks is risky by nature, and even long-term winners can have off years. If you want a lower-risk way to enjoy the benefits of the stock market, there's an easier way to do it. You can invest in ETFs, or exchange-traded funds. These are funds that trade just like a stock, but hold dozens of individual stocks, allowing you as an investor to get exposure to a broad array of companies with just one investment. The only cost to you is a small annual commission, known as an expense ratio, to run the fund. Often the expense ratio is 0.1% or less of your investment, making it worth the convenience.
One of the most popular ways to invest in ETFs is through index funds, which track an index like the S&P 500, but there's one index fund that looks particularly ripe for the picking right now. That's the Invesco Nasdaq 100 Index Fund (QQQM -0.48%)
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All about the Nasdaq-100
The Nasdaq-100 holds the 100 largest Nasdaq-listed nonfinancial companies, or the top stocks in the Nasdaq Composite.
Historically, the tech-heavy Nasdaq has been more volatile than the S&P 500 and the Dow Jones Industrial Average as tech stocks tend to trade at higher valuations, making them more vulnerable to market cycles and crashes.
Last year, the Nasdaq Composite significantly underperformed the two major indexes, and the Nasdaq-100 essentially matched the Nasdaq Composite index for the year.
Last year's sell-off in tech stocks came after huge gains in 2020 and 2021, and despite its steep losses last year, the Nasdaq Composite has outperformed the Dow and S&P 500 over a longer time horizon, and the Nasdaq-100 has done even better. Here's a chart for the last 10 years, and one that dates back to the 1990s.
As you can see, the Nasdaq-100 has beaten the Nasdaq Composite by a significant margin. That makes sense since the Nasdaq-100 is essentially a self-selecting group of the best Nasdaq stocks. Only top performers get into the club.
Even better, the Nasdaq-100 has utterly crushed the S&P 500, essentially doubling its growth over a decade, and nearly beating it by a factor of 4 going back to the 1990s. Even with dividends factored in, the Nasdaq-100 is the clear winner.
Why it's time to buy the Nasdaq-100
Now looks like an especially opportune moment to buy the Invesco Nasdaq 100 ETF. Its biggest holdings like Apple, Microsoft, Alphabet, and Amazon all fell sharply last year, and these stocks have a long history of outperformance. Together, they make up roughly 40% of the value of the Nasdaq-100.
They're also likely to rebound when the economy starts to recover as the tech industry tends to be cyclical, and they're all trading at cheap valuations compared to recent years. Three of them -- Microsoft, Alphabet, and Amazon -- have announced major layoffs in the last few weeks, making it more likely that they'll emerge from the current downturn even more profitable.
Additionally, the dollar has weakened significantly over the last three months, which means that the headwinds from a stronger dollar over the past year could soon dissipate and turn into tailwinds by the end of the year.
The volatility of the Nasdaq swings both ways. The index is likely to benefit from a recovery in the economy, and these stocks should beat the broad market when the next bull market begins.
Buying the Invesco ETF is the easiest way to get exposure to these stocks and other proven winners like Nvidia and Tesla, and it charges an expense ratio of just 0.15%.
If you want an easy, low-risk way to beat the market in the recovery, skip the stock-picking and consider buying shares of the Invesco Nasdaq 100 ETF.
