A "Gold Pass" to Tech Stocks for White Investors
Hello, I'm an independent journalist in the tech finance world. Remember how confused I was when I first heard about “Nasdaq 100 ETF”? It was like stepping into Starbucks for the first time and being confronted with a wall full of Italian menus. But don't worry, today I'm going to take you along with me and analyze this investment tool, which is known as the “golden passport” for tech stocks, in the most down-to-earth way.
As a former financial whites, now the self-media blogger, I know the importance of popularizing financial knowledge. In this era of information explosion, how to find the right investment products from the complexity of the investment products, is not an easy thing. The Nasdaq 100 ETF, on the other hand, happens to be the first stop for many people to enter the U.S. stock market. So, what is it exactly? Why is it worth our attention? Let's unravel its mystery!
Ⅰ. What is the Nasdaq 100 ETF?
Simply put, a Nasdaq 100 ETF is a collection of stocks in a basket that is filled with the top tech companies in the Nasdaq 100. Imagine buying shares of Apple, Microsoft, Amazon and other giants with a single lottery ticket, isn't that cool?
The term “ETF” here is an acronym for “Exchange-Traded Open-Ended Index Fund”. It's like a “group buy” in the financial world, allowing ordinary investors to participate in the growth of big companies.
Ⅱ. Why choose Nasdaq 100 ETF?
- Diversification: Diversify your risk by buying 100 quality companies at once.
- Low cost and high efficiency: ETFs have lower transaction costs than buying each company's shares individually.
- Liquid: As convenient as buying and selling stocks, you can enter and exit at any time.
- Tracking technology development: The Nasdaq 100 contains many innovative technology companies, investing in it is betting on the future.
Ⅲ. Amazing performance of Nasdaq 100 in the last 20 years
As an old leek who has witnessed the development of Nasdaq 100 for nearly 20 years, I have to say that its performance is really remarkable. Let's take a look at some specific data:
- Overall return: from 2004 to 2024, the total return of the Nasdaq 100 is more than 1,000%. This means that if you invested $10,000 in 2004, your investment could have appreciated to over $110,000 by 2024.
- Annualized Returns: Over that 20-year period, the Nasdaq 100 had an annualized return of about 13%. This far exceeds the S&P 500's annualized return of about 9% over the same period.
- Volatility: Despite the overall outperformance, the Nasdaq 100 has experienced several significant pullbacks. Most notably the ~50% decline during the 2008 financial crisis and the ~30% pullback during the 2022 tech correction.
- Rise of tech giants: these 20 years have seen the rise of tech giants such as Apple, Amazon, and Google (Alphabet). The growth in market capitalization of these companies has contributed significantly to the performance of the Nasdaq 100.
- Comparison to other indices: The Nasdaq 100 has significantly outperformed other major indices such as the Dow Jones Industrial Average and the S&P 500 over these 20 years.
- Compound effect: Thanks to the high growth nature of many of these companies, the Nasdaq 100 has demonstrated a strong compound growth effect, especially in the late 2010s.
Ⅳ. How to invest in the Nasdaq 100 ETF?
- Choose the right brokerage firm: U.S. brokerage firms all provide U.S. stock ETF trading services or choose the Nasdaq 100 feeder fund of mainland China QDII.
- Open an account and deposit funds: After completing the account opening, transfer funds to prepare for investment.
- Select ETF products: Commonly available are QQQ, QQQM, etc., choose according to your needs.
- Formulate investment strategy: You can choose to make a fixed investment or a one-time buy, but you have to decide according to your risk tolerance ability.
Ⅴ. Fixed investment in Nasdaq 100:
a 20-year wealth accumulation experiment
As a former fixed investment enthusiast, I often think: if I started to invest in Nasdaq 100 since 2004, what would it be like now? Let's take a look at this hypothetical scenario:
Assuming a monthly investment of $1,000 into an ETF tracking the Nasdaq 100 (e.g. QQQ) starting in January 2004 and continuing until January 2024, for a total of 20 years of investment, what would the result be?
- Total Investment Amount: 20 years * 12 months * $1,000 = $240,000
- Estimated Final Value: Based on historical data simulations, your portfolio could be worth more than $1,200,000 by January 2024
- Total Return: (1,200,000 - 240,000) / 240,000 ≈ 400
- Annualized Return: about 10-11% (this figure is lower than the previously mentioned 13% because the fixed investment strategy spreads out the entries)
- Dollar-cost averaging effect: by fixing your investment, you buy more shares at market lows and less shares at highs, effectively smoothing out market volatility.
- Compound interest effect: shares bought early have a longer time to enjoy compounded growth, contributing significantly to final returns.
Ⅵ. Advantages of Fixed Investment Strategy
- Discipline: Fixed investment helps investors establish regular investment habits and avoid making wrong decisions due to emotional fluctuations.
- Diversification of risk: By buying at different points in time, the risk of timing is reduced.
- Smoothing out volatility: You will buy more shares when the market is falling; buy less when it is rising, and you may get a better cost of averaging in the long run.
- Suitable for ordinary investors: does not require professional market analysis skills, suitable for long-term, passive investment strategy.
Ⅶ. Lump sum investment Vs fixed investment
Detailed Comparison of 20-Year Returns
At the request of our readers, let's take a look at a comparison of the annual returns on the Nasdaq 100 from 2004 onwards between a lump sum investment of $240,000 and a fixed investment of $1,000 per month (also totaling $240,000 over 20 years). Please note that the following data is a simulation based on historical data and is for reference only, actual investment results may vary.
Unit: US dollars
| Years | Income from investments | Value of one-time investment assets | Fixed deposit investments | Gross fixed assets | Fixed income |
|---|---|---|---|---|---|
| 2004 | 22,382 | 262,382 | 12,000 | 12,743 | 743 |
| 2005 | 4,943 | 267,325 | 24,000 | 26,359 | 2,359 |
| 2006 | 18,713 | 286,038 | 36,000 | 43,254 | 7,254 |
| 2007 | 50,863 | 336,901 | 48,000 | 61,890 | 13,890 |
| 2008 | -163,052 | 173,849 | 60,000 | 47,928 | -12,072 |
| 2009 | 82,461 | 256,310 | 72,000 | 96,201 | 24,201 |
| 2010 | 51,262 | 307,572 | 84,000 | 131,977 | 47,977 |
| 2011 | 9,227 | 316,799 | 96,000 | 148,464 | 52,464 |
| 2012 | 47,520 | 364,319 | 108,000 | 189,437 | 81,437 |
| 2013 | 131,155 | 495,474 | 120,000 | 280,321 | 160,321 |
| 2014 | 74,321 | 569,795 | 132,000 | 339,281 | 207,281 |
| 2015 | 34,188 | 603,983 | 144,000 | 374,166 | 230,166 |
| 2016 | 36,239 | 640,222 | 156,000 | 411,767 | 255,767 |
| 2017 | 192,067 | 832,289 | 168,000 | 567,277 | 399,277 |
| 2018 | -49,937 | 782,352 | 180,000 | 538,772 | 358,772 |
| 2019 | 258,176 | 1,040,528 | 192,000 | 750,281 | 558,281 |
| 2020 | 404,845 | 1,445,373 | 204,000 | 1,091,409 | 887,409 |
| 2021 | 361,343 | 1,806,716 | 216,000 | 1,402,928 | 1,186,928 |
| 2022 | -1,084,030 | 722,686 | 228,000 | 698,859 | 470,859 |
| 2023 | 469,747 | 1,192,433 | 240,000 | 1,198,633 | 958,633 |
Ⅷ. Key observations
- Initial performance: In the early years of investing, lump sums earned significantly more than fixed investments. For example, in 2004, the lump sum earned $22,382 compared to $743 for the fixed investment.
- Impact of market volatility: During the 2008 financial crisis, both strategies suffered significant losses, but the lump sum lost more (-$163,052 vs -$12,072).
- Catching up process: Over time, the annual returns of the fixed investment strategy gradually approached those of the lump sum investment. Especially in the later years, the total value of the fixed investment strategy starts to catch up with the lump sum investment.
- End result: By the end of 2023, the total value of the Fixed Investment Strategy ($1,198,633) is actually slightly higher than the Lump Sum Investment ($1,192,433), even though the total investment is only $240,000.
- Volatility: the annual returns on the lump sum investment are much more volatile. For example, the sharp decline in 2022 had a more significant impact on the lump sum investment (-$1,084,030 vs. $470,859 fixed investment return).
Ⅸ. Investment Risk Alert
While the Nasdaq 100 ETF is considered a relatively sound investment choice, we should be wary of the following risks:
- Market volatility: Technology stocks tend to be volatile and need to be prepared.
- Exchange rate risk: Changes in the exchange rate of USD to RMB will affect returns.
- Concentration risk: top10 companies account for a relatively high percentage of the total, which may pose some risk.
Ⅹ. My personal opinion
As an investor who has experienced the ups and downs of the market over the past 20 years, I have the following thoughts after seeing these specific data:
- Risk tolerance is critical: lump sums may deliver higher returns in some years, but they also face greater short-term risk. the 2008 and 2022 selloffs hit lump sums particularly hard.
- The psychological advantages of fixed investments: although fixed investments offer less return upfront, they are effective in reducing psychological stress for investors. Investors with a fixed investment strategy may be more likely to stick with it in the face of the market crashes of 2008 and 2022.
- There is little difference in the long run: it is surprising that after 20 years, the final results of the two strategies are so close. This proves once again that with a quality index like the Nasdaq 100, investing for the long term is key.
- Flexibility of Fixed Investing: Realistically, many people may struggle to commit large sums of money at once, and a fixed investment strategy offers greater flexibility. You can adjust your monthly investment amount according to your financial situation.
- Compound interest effect: These figures clearly demonstrate the power of compound interest. Especially in the latter years, even smaller percentage changes can result in huge absolute gains or losses.
- The unpredictability of market timing: These data also illustrate how difficult it is to try to determine market tops or bottoms. Sticking to a long-term investment strategy is more important than trying to time the market.
Ⅺ. Conclusion
This 20 years of detailed data gives us an insight: holding the Nasdaq 100 over the long term can deliver substantial returns, whether you choose to invest in a lump sum or a fixed investment. Which strategy to choose depends more on one's financial situation, risk tolerance and investment discipline.
For most ordinary investors, I still tend to recommend the fixed investment strategy. It not only smoothes out market volatility, but also helps you automatically buy more shares during market downturns. Most importantly, it develops the good habit of investing consistently.
Remember, investing is a long run. Stay patient, stay disciplined, and stick to your investment plan no matter how volatile the market gets. Over time, the magic of compounding will eventually reveal itself.
