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When you say "yield" I presume you mean highest returning, as in, total growth or total return.

Nobody can predict the future. The general thing we know about stock investments is that, on average, stocks tend to increase over long periods of time such as 20 years. But there are different sectors in the stock market, and some will gain more than others. For example, tech gained a lot in the last 10 years. But, in the decade previous to that tech actually had the worst return, and the best stock return was something else, maybe the utilities sector, or foreign/emerging markets.

If you had bought one of these tech ETFs 20 years ago, you would have seen absolutely horrible performance.

It changes every decade. We really can't predict which sectors will be strong and which will be weak. It sounds like you're trying to target the tech sector, anticipating that it will continue growing at the strong pace it's had in the last few years. It may do that, or it may turn out to be a horrible sector in the next decade.

The general approach to tackle this problem is to make diversified investments that include all sectors. Why? Because that way, you capture the general effect -- that stocks on average go up over time. This is a better way to go than betting on a specific sector.

Among the ones you listed, QQQ is the most diversified, but it's still awfully heavily concentrated in tech. In my opinion you'd be better off with a broad US market ETF such as IVV for the S&P 500 index, or you can hold ZSP (trades in Canada in CAD) which holds the same stuff.
 

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Discussion Starter #3
When you say "yield" I presume you mean highest returning, as in, total growth or total return.

Nobody can predict the future. The general thing we know about stock investments is that, on average, stocks tend to increase over long periods of time such as 20 years. But there are different sectors in the stock market, and some will gain more than others. For example, tech gained a lot in the last 10 years. But, in the decade previous to that tech actually had the worst return, and the best stock return was something else, maybe the utilities sector, or foreign/emerging markets.

If you had bought one of these tech ETFs 20 years ago, you would have seen absolutely horrible performance.

It changes every decade. We really can't predict which sectors will be strong and which will be weak. It sounds like you're trying to target the tech sector, anticipating that it will continue growing at the strong pace it's had in the last few years. It may do that, or it may turn out to be a horrible sector in the next decade.

The general approach to tackle this problem is to make diversified investments that include all sectors. Why? Because that way, you capture the general effect -- that stocks on average go up over time. This is a better way to go than betting on a specific sector.

Among the ones you listed, QQQ is the most diversified, but it's still awfully heavily concentrated in tech. In my opinion you'd be better off with a broad US market ETF such as IVV for the S&P 500 index, or you can hold ZSP (trades in Canada in CAD) which holds the same stuff.
IMO, tech is unlikely to be a bad sector going forward since the p/e ratio is the around the same as of S&P 500 and significantly lower than the Dotcom bubble. Diversification isn't always helpful - it didn't matter how diversified you were during the 2008 stock market downturn, almost all sectors dropped by over 50%. As an example, if you held FDN right before the downtown, you're portfolio would've dropped by almost the exact amount as if you had held S&P500 even though FDN only has 42 stocks compared to 505 of S&P's. Also, FDN recovered significantly faster than the S&P500 and crushed it in returns going forward. FDN might not repeat the same performance again but I'm confident that at least Nasdaq will significantly outperform S&P500 again like it has been for so long, there's no reason to think it won't. It's not in a bubble like it was 2 decades ago, everyone learned their lesson.

IMO, heavy diversification (being in too many sectors, foreign markets and bonds) seriously decreases returns and the benefit of lower drawdowns isn't always true (check the 2008 market drop where all sectors including Healthcare, Utilities, Tech, Consumer Staples, Energy got absolutely pummelled and diversification didn't save anyone).
 

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I think you're wrong about maximum drawdown. FDN didn't exist during the tech bear market of 2001. If you look at QQQ, which did exist, it had a maximum drawdown of 84% from the 2000 bubble peak to the low. The S&P 500 drop was much milder, about 50% in both recent bear markets.

QQQ also took about 17 years to recover back to its 2000 peak price. That's a very long time to wait around. SPY on the other hand took 7 years to recover from the 2000 peak, and 6 years to recover from the 2007 peak. From both of those measures (maximum drawdown and years to recover), QQQ / tech was a riskier investment.

I also don't think people learned their lesson. I've been working in tech, and I think we are in a tech bubble. Far too much money being thrown around. Tech fetishism, gimmicks and stupid ideas everywhere. Extremely high, unjustified salaries. Ridiculous equity returns. High profile status of flaky, talentless tech start-up entrepreneurs.

But if you really want to concentrate in tech, you could always go with QLD, a 2x leveraged bet on the QQQs. Its 10 year annualized performance is 32.65% per year, and it's up 42% since the start of this year.
https://finance.yahoo.com/quote/QLD/performance/

Warning though, it's leveraged, so it's unbelievably volatile. In 2008 it was down -73%. In 2009 it was up 119%. It also has unique risks, and could actually go to zero during a significant bear market, due to leverage. This is a very risky investment.

I would never buy it. But man has it performed well during this tech bull market.

I'm confident that at least Nasdaq will significantly outperform S&P500 again like it has been for so long, there's no reason to think it won't.
Since June 2000, according to my charts, QQQ has returned +162%. SPY has returned +203%. So that's 19 years of the S&P 500 outperforming QQQ. Since the previous tech bubble peak, QQQ has not caught back up to the S&P 500.

Try shifting the start date back to January 1999. QQQ first shot way ahead, crashed, then underperformed SPY until 2014 (that's 15 years). Only in the last few years did QQQ pull ahead.

If you're going to concentrate in tech, you should be prepared for it to potentially underperform for 10 to 20 years, even if you're right about tech ultimately performing the best.
 

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Discussion Starter #5
Reply:

I'll agree that holding FDN or QQQ (if they existed) during the tech bubble was horrible compared to something broad like S&P500, but the thing is, tech is absolutely not in a bubble right now (check price to earnings ratio right now compared to tech bubble. Tech stocks are not overvalued based on hopes of future earnings, like they were during tech bubble)

I've already looked into TQQQ and QLD and am interested in them, but was also looking at a non-leveraged ETF that has high risks but also high returns (Maybe FDN?) I'm planning to go heavily into TQQQ but only after a big market drawdown so I have the highest gain potential, but in the meantime also be exposed to a high-returns non-leveraged ETF like FDN or QQQ that have significantly less drawdowns than something like TQQQ in case of market crashes, if that makes sense. I had been 100% in TQQQ for almost a year but pulled out due to market being very choppy and I was lucky that I didn't lose much money.

I think the holding leveraged ETF's long-term isn't as bad of an idea as many might something. Consider UPRO (3X S&P500 Bull) - if you held it from Jan 1951 to Feb 2015, you would've gotten annualized returns of 16.1% compared to only 7.7% of S&P although max drawdown for UPRO in that period was 97.7% compared to only 56.8% for S&P500. In that period, $10k would've turned to $169M for UPRO compared to only $1.29M for S&P - thats over 100 times higher.
 

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I think long term positions in leveraged ETFs can work out, provided that the ETF does not completely blow up. For this reason, if I was going that path, I'd stick to the lower leverage versions. The higher leverage versions are more likely to completely blow up / unwind. The higher leverage ones also have worse tracking in highly volatile markets.

One I have considered holding long term is SSO, leveraged S&P 500. This one survived the last financial crisis, so there's some reason to think it might not blow up in the next one as well. 10 year annualized return of 23.36%. In 2008 it only dropped 68%, which isn't too bad.

It's actually something I may open a position in once there is a significant market correction. I would consider it extremely high risk, since it's an exotic ETF. But at least it survived 2008.
 

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Discussion Starter #7
I think long term positions in leveraged ETFs can work out, provided that the ETF does not completely blow up. For this reason, if I was going that path, I'd stick to the lower leverage versions. The higher leverage versions are more likely to completely blow up / unwind. The higher leverage ones also have worse tracking in highly volatile markets.

One I have considered holding long term is SSO, leveraged S&P 500. This one survived the last financial crisis, so there's some reason to think it might not blow up in the next one as well. 10 year annualized return of 23.36%. In 2008 it only dropped 68%, which isn't too bad.

It's actually something I may open a position in once there is a significant market correction. I would consider it extremely high risk, since it's an exotic ETF. But at least it survived 2008.
I'd recommend you pick QLD (Nasdaq-100 2X Bull) over SSO - it outperforms UPRO yet is less riskier. It also survived 2008 and has a Canadian version, HQU
 
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