With the Nasdaq Composite hitting correction territory earlier this week, which is defined as at least a 10% decline from a recent high, investors may be getting worried. That's normal. In fact, there are a number of things to be nervous about in the near term. The threat of trade wars and a potential economic recession have helped push stocks lower.
However, that does not mean that investors should panic and dump all their stock investments. There are a few reasons for this. One is that market corrections are normal, and it is not certain that these tariffs will last. But the market typically likes to sell first and ask questions later during periods of uncertainty.
Another reason is that market timing is impossible. You'll never be able to get in and out at just the right times.
Even if we enter a bear market, which is a 20% decline or more, bear markets tend to be much shorter than bull markets, lasting on average less than 10 months. However, when the market does turn, stocks tend to go back up quickly. During the first month of a new bull market, stocks go up an average of nearly 14%, and they return an average of more than 25% in the first three months.
Bear markets can also sometimes be very short. The bear market following the market crash of 1987 only lasted three months, while the COVID bear market lasted just over a month.
I tried to time the market during the COVID bear market early on, convinced that the virus would cause a lot of economic disruption. It did, but the market reaction was swift and quick, rallying before much of the impact from the eventual pandemic even occurred. I missed much of the pain on the way down, but I was not able to time the rally and probably ended up slightly worse than if I had just stayed invested.
Image source: Getty Images.
So what should investors do?
The first key is not to panic, but to look at this as a buying opportunity. Given the difficulty of market timing, I suggest using a dollar-cost averaging strategy on the way down and on the way back up. This is where you invest a set dollar amount at set periods of time regardless of what the market is doing.
If you can invest a little each week, that would be great, given how quickly a down-trending market can move. Timing the exact bottom and when the market rallies is generally not going to be possible, but using a dollar-cost averaging strategy is going to help you get into stocks at some pretty good prices.
For this strategy, I would recommend using an exchange traded fund (ETF) over picking individual stocks. With the Nasdaq in correction, the Invesco Nasdaq 100 ETF (QQQ +1.91%) is a great investment vehicle to use for this strategy.
The ETF consists of the 100 largest non-financial stocks that trade on the Nasdaq stock exchange. Not surprisingly, this is going to include a lot of the top technology stocks in the world. In fact, about 60% of the index in made up of stocks classified as technology stocks, while there are other very tech-adjacent stocks in the mix as well that are classified in other sectors, such as Amazon and Tesla.
Below is a list of the ETF's top holdings and their weightings as of March 7, 2025.
| Holding | Weighting | Holding | Weighting | |
|---|---|---|---|---|
| Apple | 9.7% | Broadcom | 4.0% | |
| Microsoft | 7.9% | Meta Platforms | 3.7% | |
| Nvidia | 7.4% | Costco Wholesale | 2.8% | |
| Amazon | 5.6% | Tesla | 2.6% | |
| Alphabet | 5.3% | Netflix | 2.5% |
Data source: Invesco.
This Invesco ETF has a very strong track record of outperformance over the years. As of the end of February, it had generated a cumulative return of more than 407% over the past 10 years. That easily surpasses the 239% gains the S&P 500 saw over the same period. Meanwhile, during that stretch, the Invesco ETF has outperformed the S&P 500 87% of the time based on rolling monthly returns, as of the end of 2024.
While you may not pick the market bottom, this is a great time to be dollar-cost averaging into the Invesco Nasdaq 100 ETF to establish an attractive cost basis and be ready for the eventual market bounce.
