Investing in the Nasdaq: A Top ETF Choice for the New Year

When discussing investments in the Nasdaq, it’s important to understand that this term can refer to several different options. For many investors, it may mean buying into the Nasdaq Composite, which is one of the major three stock market indices in the United States. This index includes nearly all the stocks listed on the Nasdaq (NASDAQ: NDAQ) stock exchange. Others may choose to invest in the Nasdaq-100, which focuses on the 100 largest non-financial companies in the Nasdaq Composite.

Deciding between these two options depends on individual investment goals and preferences. The Nasdaq Composite offers a broader range of over 2,500 companies, making it highly diversified. In contrast, the Nasdaq-100 concentrates its investments in the most substantial and influential names within the market.

As we approach the new year, an excellent choice for those looking to invest in the Nasdaq is a Nasdaq-100 exchange-traded fund (ETF), such as the Invesco QQQ Trust (QQQ). This ETF has gained immense popularity among investors and has consistently delivered solid returns over the years.

Growth Potential of Top Holdings

The Invesco QQQ Trust is designed to be market-cap weighted, meaning that larger companies hold a more significant share of the fund compared to smaller firms. This characteristic has allowed some major technology companies to lead its performance. Below are the top 10 holdings within the ETF, along with their respective ownership percentages:

Company	Percentage of the ETF
Apple	8.96%
Nvidia	7.88%
Microsoft	7.83%
Amazon	5.62%
Meta Platforms	5.12%
Broadcom	4.89%
Tesla	4.61%
Costco Wholesale	2.70%
Alphabet (Class A)	2.58%
Alphabet (Class C)	2.48%

As of December 10, more than 52% of the ETF is invested in these ten companies. While this may not demonstrate ideal diversification, these companies show promising growth potential into 2025 and beyond. This positive outlook is largely driven by significant trends in technology, including artificial intelligence (AI), cloud computing, and electric vehicles (EV).

AI is not just a standalone industry; it is on the verge of revolutionizing many sectors. Companies like those in the QQQ are heavily involved in producing the essential tools for AI, like semiconductors and data centers.

On the other hand, cloud computing is still in its early adoption stages. Currently, Amazon, Microsoft, and Alphabet are leading this market with respective shares of 31%, 20%, and 11%.

The global EV market is another area of immense growth. It was valued at over $500 billion in 2023 and is projected to reach nearly $1.9 trillion by 2032, reflecting a compound annual growth rate of just under 14%. While Tesla is the only EV manufacturer in the ETF’s top 10, it relies on several partners for its hardware and software needs.

A Track Record of Success

The Invesco QQQ Trust has had a remarkable history since its launch in March 1999. Over the past 25 years, it has produced returns exceeding 930% as of December 12 and has averaged an annual return of around 9.5%. These performance metrics have outpaced those of the S&P 500. An initial investment of $1,000 in the ETF would now be worth more than $10,300.

While past performance isn’t an indicator of future results, it is reassuring to see how well the ETF has performed through various challenging market phases, including the dot-com crash, the Great Recession, and the COVID-19 pandemic.

Investors will also appreciate the relatively low expense ratio of this ETF, which is set at 0.2%. This means that an investor pays only $2 for every $1,000 invested on an annual basis. While this may seem higher than some S&P 500 ETFs (such as those offered by Vanguard at 0.03%), it remains reasonable in the grand scheme.

Choosing an ETF often involves considering costs, as even small differences can accumulate to considerable amounts over time. The Invesco QQQ Trust stands out as a cost-effective option with a solid performance history and substantial growth opportunities for its leading holdings.

Note: Always conduct your own research or consult a financial advisor before making investment decisions.

Investing, Nasdaq, ETF