MFOHome About Commentary Discussions Funds The Best Resources Support Us!

Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

Sign In Register

Categories

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

QQQ for young-ish adult first timer....seems to be a decent starting place.

catch22catch22
in Fund Discussions
Okay, lots of investment choices these days.
Overview: two late 30's siblings have been provided with starter money ($2,000) for a Roth IRA. This was done to get their arse's out of the barn about investments. Neither have had thought patterns about why it may be of future benefit to invest even $100 a month into an available 401k plan. We all know these stories.
They both have solid employment, so they may use this free money for an investment.
I was contacted today that these two finally opened a Roth account at Fidelity, after seven months of sitting on the free money in a bank account.
An initial discussion 7 months ago offered my suggestion of the initial monies going into QQQ, as a starting point.

QQQ:
The Index is a modified capitalization-weighted index of securities issued by100 of the largest non-financial companies listed on the NASDAQ Global Select orNASDAQ Global Market tier of NASDAQ (see “The Index”).
QQQ is also as inexpensive as one may have for this sector, at .20 ER.

Have you another parking place to suggest for this money?

Thank you and take care,
Catch

Comments

  • MarkMark
    Take a look at FTEC if they're at Fidelity. Fairly same performance, similar composition, 0.084% ER.
  • Observant1
    edited January 2021
    QQQ is not very diversified since its allocation to the technology sector was 48.21% as of Sept. 30, 2020.
    Technology stocks in general have performed well over the past decade.
    What happens when tech stocks incur steep losses (e.g. 2000 - 2002) in the future?
    QQQ excludes companies which are not listed on the NASDAQ exchange.
    An investor may miss out on some excellent companies listed on the NYSE.
    For these two siblings, I might suggest FSKAX or FXAIX instead.
  • Sven
    Stock valuation is all time high. I would consider a total market index fund instead. You will have a broader exposure to many sectors.

    COVID cases are running rampant and we could return to March 2020 scenario again.
  • davidrmorandavidrmoran
    late 30s, not needed for perhaps 3 decades? I would say QQQ or FTEC, without hesitation
  • Old_JoeOld_Joe
    I'm guessing that if Ted were still with us he'd agree with QQQ.
  • davidrmorandavidrmoran
    edited January 2021
    nah, he would go w PFF and soybean futures ...
  • catch22catch22
    The input thus far is very much appreciated. Additional thoughts are welcomed. FTEC is an excellent choice, too; as we also invest in this etf. @Old_Joe , yes; Ted would state that QQQ is the one. @davidrmoran , yes, perhaps Ted would also suggest these. If there were a larger dollar amount available, I would also be tempted to suggest some of the money be split into FSMEX or IHI (an eft twin) for direct exposure to medical tech.

    SPY and most related indexes that track the SP-500 are a blended U.S. equity position. I do not consider this a poor choice for many portfolios; but consider an investment in QQQ or similar to be a better fit for a young investor. SPY type funds do represent a much larger sample of U.S. equity; but one also finds sectors of this area that can be a drag on performance, too. Over the past several years, financials and energy have been brakes on performance. But, the recent inclusion of TESLA and other ongoing changes will continue to affect this mix.

    SPY 
    Sectors	Fund %	Cat %
     Basic Materials	2.42	2.61
     Consumer Cyclical	12.66	11.17
     Financial Services	13.90	13.42
     Real Estate	2.29	2.47
     Communication Services	10.26	10.21
     Energy	2.60	1.90
     Industrials	8.83	10.11
     Technology	23.82	22.81
     Consumer Defensive	6.78	7.99
     Healthcare	13.77	14.76
     Utilities	2.67	2.54
    QQQ
    With this is a much smaller sampling of U.S. equity (100 companies), but oriented to growth; but using market capitalization size to establish the holdings and percent. The prospectus indicates that the holdings percentage may be and are adjusted throughout any given time period. 
    Information Technology	47.90%
    Consumer Discretionary	19.29%
    Communication Services	18.22%
    Health Care	6.39%
    Consumer Staples	5.15%
    Industrials	1.88%
    Utilities	0.96%
    Industry exposure: 
    Software	15.27%
    Semiconductors & Semiconductor Equipment	13.96%
    Technology Hardware, Storage & Peripherals	12.37%
    Internet & Direct Marketing Retail	11.95%
    Interactive Media & Services	10.35%
    IT Services	4.59%
    Automobiles	4.43%
    Biotechnology	3.98%
    Media	3.39%
    Entertainment	3.11%
  • MarkMark
    FWIW - I have stated that I do not own a dedicated S&P fund but lately I have been considering it. However the more I dig into it the better VONE looks. Maybe it's because of the index it tracks (i.e. the Russell 1000 v. S&P 500). Having those midcaps in there appears to make a difference.
  • BenWPBenWP
    If it were my kids, I would go with a Russell 3000 ETF, and I’d probably go with the lowest ER instrument. FWIIW I have one of my kid’s account in VIG, AKREX, and PTIAX. It’s a little more conservative now as she may need $ for med school.
  • msf
    Is it really the midcaps that make VONE/VRNIX look better? Over its lifetime it has performed slightly worse than VV/VLCAX, which has a higher average market cap ($167B vs. $132B) and less market coverage (85% vs. 92%).

    M* chart comparing VRNIX with VLCAX over VRNIX's lifetime (starting 9/21/2010).

    Is the relative underperformance of VFIAX due perhaps to what @catch22 suggested - the S&P 500 exclusion of TSLA, which has since been "corrected"? Or perhaps it's just a matter of "what have you done for me lately?". These can be tested by chopping the last year off the chart and doing another comparison. This time I've added VFIAX (S&P 500) and VTSAX (CRSP total market index, covering 100% of the US market).

    M* chart comparing VFIAX (S&P 500), VLCAX (CRSP LC index), VRNIX (R1K), VTSAX (CRSP total market), 9/21/2010 to 1/16/2020

    The total returns are in that order: VFIAX > VLCAX > VRNIX > VTSAX

    Personally, if I were investing in an index fund like this, I wouldn't bet on a particular part of the market. I'd just buy the whole market and be done with it. Or if I really wanted a large cap index fund, I'd avoid the S&P (I'm not fond of its methodology).

    Though it hasn't created cap gains distributions, VRNIX's 8.7% turnover ratio is higher than VLCAX's 1.6%. VFIAX has a 1.8% turnover ratio as of 12/31/2020, so that may already include the impact of having added TSLA.


  • Observant1
    edited January 2021
    VONE* has outperformed VFIAX and VTSAX** over the trailing 5 Yr. and 10 Yr. periods ending on 12/31/2020. You may also want to consider VTCLX. It is an actively-managed mutual fund which tracks the Russell 1000.
    Its unique approach attempts to track the benchmark, while minimizing taxable gains and dividend income by purchasing index securities that pay lower dividends.
    Here are some comparison charts:
    5 Yr
    10 Yr
    15 Yr



    *09/20/2010 inception date, excluded from 15 Yr. comparison
    **benchmark index changed from MSCI to CRSP on 06/03/2013
Sign In or Register to comment.