After a disappointing 2022 that saw its value decline by a third, the Nasdaq-100 -- which tracks the 100 largest nonfinancial stocks on the Nasdaq -- has rallied so far in 2023, up 45% as of this writing. It has considerably outperformed the three main indexes tracking U.S. stocks: the S&P 500, the Dow Jones Industrial Average, and the broader and tech-heavy Nasdaq Composite.
The past few years have shown investors how quickly courses can turn in the stock market, especially when dealing with high-growth companies like the ones the Nasdaq-100 tracks. This has, understandably, given some investors reservations about investing in the Nasdaq-100 after such a good run this year. But I don't think concerns about short-term volatility should overshadow long-term potential.
There is no need to try to time the market
There can often be a thin line between holding off on an investment because of legitimate concerns over market conditions and holding off until you find the "perfect" time to invest. I hate to be the bearer of bad news, but if you're waiting for the perfect time to invest, you might never invest -- which presents a different issue.
The goal should be to hold on to an investment for the long term, so timing the market isn't that important in the grand scheme compared to what time in the market and compounded earnings can do for you. There's also the very real possibility that prices continue to rise while you anticipate them dropping in which case you're missing out on the rise.
If you want to buy a stock but have reservations because of a recent rally, a good approach is dollar-cost averaging: investing fixed amounts at regular intervals, regardless of market conditions.
The goal of dollar-cost averaging is to reduce the impact of volatility and remove the urge to try timing the market. Your investment amount is set; the days to make your investment are set. All you have to do is remain consistent and stick to your schedule.
The best way to invest in the Nasdaq-100
If you are interested in investing in the 100 stocks in the Nasdaq-100, one of the most common ways to do that is through the Invesco QQQ ETF (QQQ 1.54%), an exchange-traded fund managed by Invesco Capital Management. This fund is market-cap-weighted, so the larger companies make up a larger part of the allocation. Here are the fund's top five holdings as of Dec. 4:
- Apple: 11.06%
- Microsoft: 10.49%
- Amazon: 5.61%
- Nvidia: 4.30%
- Meta Platforms: 3.80%
Having over 35% of the ETF in these five companies explains a lot of the Invesco QQQ ETF's growth this year. The worst-performing stock out of the five is Apple, which is up over 45% year to date. Nvidia leads the way, up over 210%.
There are a handful of Nasdaq-100 funds, but the Invesco QQQ ETF stands out because of its popularity -- it is the second-most-traded ETF in the U.S. based on daily volume -- and low expense ratio of 0.2%.
The stocks in this ETF have a lot of overlap with indexes like the S&P 500, so if you're investing in other funds tracking that index -- or the larger Nasdaq -- keep an eye whether your holdings are becoming too concentrated and reliant on the performance of a handful of companies.
The companies powering this ETF have room to run
The Invesco QQQ contains some of the most innovative and important companies to the U.S. and world economies. And despite how long many of the companies have been in business, rapid developments point to them being on the relatively earlier end of what could be.
From artificial intelligence to electric vehicles to biotechnology, these industries (and the companies that lead them) are poised for substantial growth. Don't let fears of near-term drops distract you from potentially decades of change and growth. Ignore short-term noise and invest expecting long-term results. It's not too late to invest in the Nasdaq-100. You've got time before 2024 starts, and after the year is underway.
