All funds in QQQ? 3 advantages and 2 disadvantages you should know.

You may have known the pros and cons for investing in QQQ, and had interest in investing in it.

However, you may be wondering, is it good to put all my funds on QQQ?

So here, I will show you the advantages and disadvantages of putting your funds all on it, and share my ideas from experiences.

Let’s get started!

Advantages of all funds in QQQ

Here are the advantages if you follow this way:

It can provide higher average returns

The first pro is you can enjoy a higher average return from the market.

Here’s the summary from QQQ website for the returns, as of Feb. 29, 2024:

YTD1-year3-year5-year10-yearSince inception in 1999
7.20%50.57%12.51%21.27%18.12%9.68%

Actually, the higher returns are provided by the high profit from the tech. companies, especially on FAAG, or Mag. 7 recently.  They have front-running techniques, and still keep on researching and developing, to make more on their market and profit.

The AI wave is the obvious case, and now Apple also jumps in this area.

As their profit continues to grow, the room for the QQQ price to rise will be more.

Don’t put its performance on single stock

The second one is, you don’t put your risk on a single stock.

QQQ has 100 composites, which means its performance depends on 100 stocks, not only one. So, for example, if Apple has a bad performance, other stocks, like Microsoft and Nvidia, can help to support the price.

You can keep on investing in it without worries

The last advantage is that you can keep investing without worries.

QQQ is tracking the Nasdaq 100 index, which is the series of Nasdaq. One trait for such an index is that it will last forever, unless the country faces a severe crisis. As if the index exists, so as in QQQ.

Also, per following Nasdaq long term trend, the growth is still going upward, so even if it faces some severe turmoil, it still recovers back in a few years.

QQQ of Nasdaq

Disadvantages of this way

In addition to pros, here are some cons you need to pay attention to:

Performance all centralized on single industrial, leak of flexibility

The first disadvantage is that it focuses too much on the tech. industry.

Although it has 100 composites, they are mainly on the tach. companies, and composed very high weights in it.

If you look at the following industries distribution, you will know what I say (data from Invesco,as of Dec. 31, 2023):

IndustriesWeights
Technology57.64%
Consumer Discretionary19.00%
Health Care6.95%
Telecommunications5.03%
Industrials4.79%
Consumer Staples4.31%
Utilities1.23%
Energy0.49%
Basic Material0.29%
Real Estate0.27%

The performance is almost decided by tech companies, hence it has less flexibility for others to support the price of the ETF, especially when these tech companies have great turmoil.

The high turmoil can make you feel pressure

The second one is the most important, and I have experienced, is that it may put you under a lot of pressure.

As shared in this article , the QQQ has greater volatility than its corresponding index, so when the index moves up or down, the ETF will go to a greater extent than the index.

You may feel nothing when the trend is going up, but when the price drops for several days, or even several months, you will fear that the price can go down deeper, and feel uncertain about the future, and if you should keep on holding it.

If you are not strong enough in your mind, you will easily give it up, cause you don’t want to see your money keep on disappearing.

The price retreat in 2022 is the latest, and an obvious case, like the following chart from Yahoo!Finance:

2022 QQQ

If you are the one who has experienced this journey, I believe you may feel pain seeing your money loss at that time.

So is it good to invest funds “all” in QQQ?

After seeing the pros and cons for investing all of your funds in QQQ, not let me share my thoughts about it.

Honestly, I do not recommend you do this.

The reason is quite simple: if you are not well-prepared, when you encounter such big turmoil, you will feel pain during this period, and you cannot live well.

I remember when I started investing QQQ with all my funds, it just happened that COVID-19 broke out. The index dropped 20% to 30% in several days, and had great volatility I had never seen.

Can you imagine that the price dropped 11% in one day, bounced back 10% the next day, and kept repeating in several days?

That all happened during that time.

I couldn’t eat and sleep well, couldn’t focus on my job, always checked the price change, and kept track of the latest news and discussion.

In brief, I was under great pressure and fear at that time.

If you think it’s no big deal for such a scenario, then congrats, you can invest all funds in it. If not, then most of you will have the same nightmare as me, and easily give up.

To keep a good lifestyle, do not put all your funds in QQQ only.

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