Comparing 2022 losses to 2023 gains has truly shown a tale of two years for many stocks and major U.S. stock market indexes. A prime example of this contrast is the Nasdaq-100 index, which was down 33% in 2022 and is up over 46% in 2023, as of Dec. 6.
Despite swings, the Nasdaq-100 has averaged 17.6% annual total returns over the past decade, roughly 5.7 percentage points more than the S&P 500.
Note that averaging 12.25% annual returns would be enough to turn a $100,000 lump sum, or $1,200 per month, into $1 million in 20 years.
There's no way to predict the Nasdaq-100's trajectory, but it's in a position to maintain a strong performance over the next couple of decades, giving investors a shot at making a lot of money. But how to invest in it without separately buying shares in all 100 stocks?
The most popular way to invest in the Nasdaq-100
The Nasdaq-100 index tracks the largest 100 nonfinancial companies trading on the Nasdaq Stock Exchange. It's similar to the popular Nasdaq Composite, but much more concentrated (roughly 100 stocks versus more than 3,000) and missing small-cap and mid-cap companies.
The Invesco QQQ ETF Trust (QQQ +1.56%) is an exchange-traded fund that mirrors the Nasdaq-100 but trades on the stock exchange like regular stocks. Just like you can buy shares of Coca-Cola on your brokerage platform, you can buy shares of the Invesco QQQ ETF Trust.
The concentration of megacap tech stocks has recently benefited the Nasdaq-100 as those stocks have risen. The ETF's top five holdings are below, along with the year-to-date gains as of Dec. 6.
| Stock | Percentage of the QQQ ETF | Year-to-Date Gains |
|---|---|---|
| Apple | 11.11% | 49% |
| Microsoft | 10.29% | 55% |
| Amazon | 5.60% | 75% |
| Nvidia | 4.22% | 218% |
| Meta Platforms | 3.74% | 165% |
Source: Invesco. Gains are rounded to the nearest percentage.
Having close to 35% of the fund in these five stocks isn't the most diversified approach, but the Invesco QQQ ETF Trust's heavy hitters could be the catalyst to helping investors hit the $1 million mark.
NASDAQ: QQQ
Key Data Points
It's going to come down to some of the top players
The Invesco QQQ ETF's growth will rely heavily on emerging market trends. There's the rise of electric vehicles, advancements in healthcare technology, AI developments, the growth of e-commerce, increased cloud computing, and other developments that are bound to shape the next few decades.
There are no guarantees, but I think a lot of the Invesco QQQ ETF's top holdings will be the companies driving many of these developments, ushering them into the mainstream, and profiting in the process. With that should come sustained growth.
Technology is the most represented sector (57.1%) in the Invesco QQQ ETF, but other top sectors, like consumer discretionary (18.73%), healthcare (7.12%), and telecommunications (5.48%), all contain notable companies that should help drive growth. For example, look at the performance of Lululemon Athletica, Intuitive Surgical, and T-Mobile over the past decade.
TMUS Total Return Level data by YCharts.
Their performance won't be as impactful as the top companies, but with only 100 total holdings, every bit of growth counts.
You don't want the ETF taking up your whole portfolio
The Invesco QQQ ETF's concentration can offer significant growth opportunities, but there is risk in being so reliant on the technology sector (or any one sector in general). It looks like its top holdings should continue growing at impressive paces, but the saying "don't put all your eggs in one basket" is timeless for a reason.
Investors should not lose sight of the importance of diversification. The ETF isn't meant to be a one-stop-shop for your portfolio. That said, it can serve a great role in a portfolio and has the potential to turn investors into millionaires.
