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In a world dominated by complex trading algorithms, high-frequency trading, and a myriad of financial instruments, sometimes the most straightforward strategies can yield the most astonishing results. One such approach has remained somewhat under the radar despite its remarkable performance. Itâs simple, doesnât involve options or penny stocks, and can be performed on all major US brokerages. This strategy has just one rule: buy and hold TQQQ.
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About the Strategy: What is TQQQ?
The Strategy Explained
The strategy under discussion is astonishingly simple â buy and hold TQQQ. Unlike other complicated strategies that involve a mix of buying, selling, and shorting various assets, this strategy involves merely purchasing shares of TQQQ and holding onto them for an extended period. This approach capitalizes on the long-term growth of the technology sector, which has historically outperformed other sectors of the economy.
Understanding TQQQ
TQQQ is a leveraged ETF, designed to amplify the daily performance of its underlying index, the NASDAQ-100. The NASDAQ-100 comprises 100 of the largest non-financial companies listed on the NASDAQ stock exchange, making it a crucial indicator of the technology sectorâs performance.
The technology sector has been a powerhouse of growth over the past few decades, consistently outperforming other sectors. Companies like Apple, Amazon, Google, and Microsoft, which make up a significant portion of the NASDAQ-100, have seen tremendous growth, driving the index higher. By investing in TQQQ, investors can potentially triple their returns, capitalizing on the technology sectorâs growth. This strategy leverages the long-term upward trend of the tech sector, transforming a solid performance into a stellar one.
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Letâs see this babyâs performance
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To provide a comprehensive and unbiased comparison, letâs use NexusTrade, a powerful tool for backtesting trading strategies, to evaluate the performance of the buy-and-hold TQQQ strategy against the historical performance of buying and holding the S&P 500. Start by heading over to the AI-Chat on NexusTrade and generate the portfolio using this strategy.
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Once the portfolio is created, save it and then proceed to the portfolio section to backtest it.
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Analyzing the Backtest Results
By backtesting across the past 10 years, you can gain valuable insights into the profitability of this straightforward strategy. The performance of this simple approach is, quite frankly, remarkable. At one point, this strategy returned over 5,000%! Thatâs insane!
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However, it is crucial to remember that past performance is not indicative of future results. While the strategy has shown incredible returns over the past decade, it also experienced significant drawdowns.
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Caution Ahead: Potential Risks and Drawbacks
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Backtesting Across the COVID Pandemic
It is essential to backtest any trading strategy across different market conditions to understand its strengths and weaknesses fully. The COVID-19 pandemic presented a unique and tumultuous period for the global financial markets. So, how did the buy-and-hold TQQQ strategy fare versus the S&P 500 during this period? Spoiler alert: not very good.
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Ouch. Losing 80% of your investment in a year is no joke. The COVID-19 pandemic led to one of the most rapid and severe market declines in history, with the S&P 500 dropping approximately 34% from its peak in February 2020 to its trough in March 2020. However, the TQQQ strategy fared far worse. Due to its triple-leveraged nature, the losses were amplified, resulting in an astonishing 80% decline.
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The Final Verdict: Is This Strategy Right for You?
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Not Suitable for All Investors
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In light of the above risks, it is clear that the buy-and-hold TQQQ strategy is not suitable for all investors. While it has the potential to deliver outsized returns during periods of sustained market growth, it carries significant risks during market downturns. This strategy is best suited for investors with a high risk tolerance and a long-term investment horizon who can weather the inevitable market storms. In conclusion, while the buy-and-hold TQQQ strategy has the potential to deliver impressive returns, it is essential to weigh these potential gains against the significant risks involved carefully.
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