Getting started investing can be a challenge. First comes opening a brokerage or retirement account, like a Roth IRA. Then comes the hardest decision: What will your first purchase be? This can be quite nerve-racking, as you probably don't have a large account balance, so not losing money is a top priority.
Still, you want to make money (that's why you're investing, right?), so balancing the two can be difficult. However, if you're starting off, I think there's one investment that makes perfect sense and can provide the balance you need.
The QQQ is filled with some of the most innovative companies in the market
Your first investment likely shouldn't be an individual stock unless you've done your research and have high conviction in the company. Instead, I'd recommend an index fund to begin, as this will give you instant diversification across many companies.
The market is full of fantastic and not-so-great funds, so this can be difficult. However, one of the best funds to own over the past decade has been the Invesco QQQ (QQQ 1.54%), which mirrors the Nasdaq-100 index. The Nasdaq-100 is often referred to in the media as "the tech-heavy Nasdaq," and for a good reason. The largest 10 positions in the fund are made up of some of the largest tech companies out there.
| Company | Allocation |
|---|---|
| Apple | 11.1% |
| Microsoft | 10% |
| Amazon | 5.5% |
| Nvidia | 4.3% |
| Meta Platforms | 3.7% |
| Broadcom | 3.5% |
| Alphabet Class A | 2.8% |
| Alphabet Class C | 2.8% |
| Tesla | 2.7% |
| Costco |
2.2% |
Data source: Invesco. Makeup as of Dec. 14, 2023.
With many of these companies being today's innovators with ideas for tomorrow, it makes sense that this cohort will likely keep winning. While an S&P 500 fund may be a more conservative approach, that index isn't as heavily weighted toward the companies that have produced the greatest innovations. That's why the QQQ has outperformed other index funds that mirror the S&P 500, like the SPDR S&P 500.
| Return Period | QQQ Total Return | SPY Total Return |
|---|---|---|
| Year to date | 52% | 24% |
| 3-year | 36% | 34% |
| 5-year | 153% | 93% |
| 10-year | 420% | 217% |
Data source: YCharts.
Those are some great returns, and anyone would be happy with that kind of performance. But with the Nasdaq-100 having such a strong 2023, can investors expect another successful year in 2024?
The QQQ has typically followed up fantastic years with even better ones
Over the past 20 years, there have been eight times when the QQQ has delivered a 20% or greater return (when dividends are included). The average return for seven of those times (because we don't know what 2024's result will be) was 25.1%, with only two years (2018 and 2022) losing money. So, on average, the QQQ has performed spectacularly after a similarly great year.
Another consideration for some investors is that 2024 is an election year. But the QQQ has done quite well in previous election years (as long as you don't include 2008, but that wasn't the election's fault).
| Year | QQQ Return |
|---|---|
| 2004 | 10.5% |
| 2008 | (41.7%) |
| 2012 | 18.1% |
| 2016 | 7.1% |
| 2020 | 48.6% |
Data source: ETFreplay.com.
Now, the setup for each of these years was completely different, and 2024 is no exception. So there is no guarantee that by investing in the QQQ now, you'll be up 25% by next year. However, if you're committed to a long-term buy-and-hold approach, then taking a position in the QQQ now is a genius move, as the long-term returns for this index have been outstanding.
