Digging In Deeper On My QQQM Purchase - And A Bonus
A few odds and ends before a brief vacation break.
In this action alert, I featured the fact that I added a new ETF, Invesco NASDAQ 100 ETF (QQQM), to my personal portfolio.
In the article, I mentioned that I was going to follow up with a detailed article on this ETF, as well as the rationale for my purchase, on Seeking Alpha. For any who are interested, here is a link to that article.
While I won’t dig into all the details of this ETF here, as I did in the linked article, here is a brief summary of my thought process in terms of initiating a position in the ETF at this particular point in time, as well as why I decided to use my Roth IRA as the vehicle with which to do so.
Why QQQM?
In the midst of recent market turmoil, I have been watching the price action of 3 of the USA's most influential companies; Amazon (AMZN), Apple (AAPL), and Microsoft (MSFT). Certainly, these 3 companies outperformed dramatically in the huge market rally of late-2020 as well as 2021. At the same time, AMZN is off its 52-week highs by roughly 40%, AAPL by 23%, and MSFT by 35%.
I had considered including these stocks as individual holdings in my portfolio. I already have a modest amount of AAPL. I would have added to this and bought small portions of AMZN and MSFT as well.
And then, in the course of my searching, I ran across an ETF which offered an opportunity to invest in all 3 in a reasonably significant way, under a single umbrella.
Have a look at the graphic below, courtesy of the fact sheet provided for QQQM by Invesco.
That’s right. The 3 stocks previously referenced just happen to be the 3 largest holdings in QQQM, with a combined weighting of 29.64%. The next pleasant surprise was that the two share classes of Alphabet (GOOG and GOOGL) comprise an additional 7.63% of the fund. Shares in Alphabet have recently been featured by multiple analysts using phrases such as ‘screaming bargain.’
We currently sit with the S&P index right around the 3,600 range. Regular readers are well aware that I believe we may yet have a little downside to go. But, rather than trying to precisely call or time any exact bottoms, I decided to at least ‘dip my toe’ into what, for me, could well turn out to be a very long-term holding. But we’ll get into that a little further in the next section.
Why In My Roth IRA?
Recently, I wrote a fairly extensive primer on the topic of asset location (not allocation, location). You might find it very helpful, particularly if you are at, or nearing, retirement age.
In my case, as a recent retiree, in line with the principles described in that primer, I am interested in placing assets with the greatest potential for growth in my Roth IRA. And QQQM represents exactly that. An asset with potential for significant growth, assuming I have a reasonably long time horizon before I need to access the funds.
With that explanation, you are likely also grasping my choice of QQQM over QQQ. You see, QQQM is marketed towards buy and hold investors and QQQ may be preferred for trading purposes. QQQ is about as liquid of an ETF as one could hope for. It trades in massive quantities each and every market session. If one is an active trader, the difference between QQQ's expense ratio of .20% and QQQM's slightly lower .15% is of far less consequence than QQQ's miniscule trading spread.
On the other hand, as a buy and hold investor, QQQM's lower expense ratio is attractive to me. While the difference is small, over several years it will add up.
BONUS: Current Status of GTC Limit Buy Orders
Lastly, a little bonus for you.
In the subtitle of this article, I mentioned a little vacation break.
As I will be out of pocket for some of this time, and not able to follow the ups and downs of the market, I am once again using a concept featured in this article. I have GTC limit buys in place as follows:
I apologize for the “quick and dirty” nature of the graphic, but I built it very quickly for myself as a working tool from which to place my orders. I thought I would also share it with readers, in case it is of any use.
Basically, ITOT and IXUS are my index-fund “catch alls” for U.S. and international stocks. The top row is the “starting” price last as of last Friday’s close from which I based my calculations, and the far right column represents the closing S&P price.
As can be seen, I simply calculated 5 increments of 1.5% decline, for a total of 7.5%. I then set each purchase, if it happens, to be 1.5x the size of the one before. As can be seen, this leaves me with my largest purchase right around 5x the number of shares of the first purchase.
As can be seen in the far right column, the S&P index would have to be somewhere in the 3,366 range for all 5 of my purchases to trigger. This is in line with the target of 3,400 that I have referenced multiple times in my articles here.
CONCLUDING NOTE: I set all of these orders this past Sunday. The first series of orders for both ITOT and IXUS triggered this morning, just before I got ready to write this article.
Alright, everyone. That’s it for now. I’m hoping I can pop in and perhaps write something quick during my vacation but, if not, I will see you when I return.
As a follow-up, today has been an extremely volatile day in the market. Following another hot inflation print, markets took a huge dive at the open, only to stage a remarkable rally shortly thereafter. It is approximately mid-session as I write this.
However, both of my 45 share GTC limit orders shown above triggered during that initial morning dive. Not to belabor the point, but it does reinforce the value of this technique, both in terms of making calm, rational, decisions as to what you want to do, but also catching even temporary blips that work to your advantage.