Can I invest in Nvidia and QQQ together? Here are 2 basic points you need to consider

With ChatGPT and Sora gaining popularity, the tech industry is currently experiencing a wave of AI trends, propelling Nvidia’s performance to soar, and its stock price to skyrocket. From the beginning of 2024 until March 7th, in less than three months, it has surged by over 80%.

“Surging by over 80%!” Regardless of who you are, when faced with such a skyrocketing stock, many people would likely be tempted to buy in frantically, fearing to miss out on this once-in-a-decade gem, especially those who are already investing in QQQ.

So, regarding how to allocate funds between Nvidia and QQQ, I will use my own example to first explain what factors to consider before investing, and finally, how much to allocate to each to ensure a reasonable distribution and avoid potential losses.

Before investing in Nvidia, 2 things need to consider

I know you’re eager to buy it, but before you take action, there are two things you must ask yourself:

Can you accept the fluctuation of Nvidia?

Nvidia has surged by over 80% in less than three months, which looks very enticing, doesn’t it?

But have you considered the possibility that it could also experience a steep decline of over 50% in a short period?

The following chart, extracted from portfolios lab, mainly compares the cumulative declines of Nvidia and QQQ from their peaks over the past decade:

Nvidia vs QQQ

The largest cumulative decline for QQQ occurred during the period of aggressive interest rate hikes by the Federal Reserve in 2022, dropping by nearly one-third. Similarly, Nvidia also experienced its most significant decline during this period, but the magnitude was much greater than that of QQQ, plummeting by almost two-thirds.

Moreover, upon closer examination, Nvidia has experienced declines of over 50% from its peak on many more occasions compared to QQQ.

In simple terms, its volatility is significantly higher than that of QQQ.

Therefore, while you may focus on Nvidia’s high returns, don’t forget the potential for substantial declines it may bring along.

Will you feel more pressure?

When considering investments in Nvidia versus QQQ, the former may indeed subject you to increased pressure.

As mentioned earlier, while Nvidia has the potential to generate an 80% return in a relatively short span, it also carries the risk of experiencing declines exceeding 50% within a brief timeframe. Can you weather such significant fluctuations?

Furthermore, in the event of a single-day decline of over 5%, similar to what occurred on March 8, 2024 (sourced from Yahoo! Finance), would you find yourself losing your appetite, enduring sleepless nights, and struggling to relax even during holidays?

Nvidia price drop

Successfully navigating the realm of investments necessitates the ability to maintain composure and resist succumbing to pressure. When faced with mounting pressure, the temptation to sell may become overpowering, potentially leading to hasty decisions that could adversely impact your investment portfolio in the long run.

How should we allocate the funds?

Taking into account these factors, how should we allocate the funds between QQQ and Nvidia?

In my view, it’s prudent to allocate a maximum of 5% of the funds to Nvidia, while the remaining portion should be allocated to QQQ.

Given the current composition of my investment portfolio, Nvidia would represent no more than 2.5% at most.

As previously mentioned, my strategy involves holding onto these stocks for the long term, regardless of short-term fluctuations, in order to minimize stress and maintain a steady course.

Therefore, despite the allure of potentially high returns from Nvidia, I prioritize QQQ due to its stability and consistency. Even if I were to increase my allocation, I would cap it at 5% of the total portfolio, ensuring that I do not exceed this threshold.

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