Alternatives to Nasdaq 100

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BIG-notorious

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I'm currently invested 100% in indexes tracking the Nasdaq 100.

The consensus seems to be that, for the purposes of diversification the MSCI All World index (or equivalent) is where it's at, but for the life of me I can't understand why.

I've compared the numbers for the Nasdaq 100, S&P 500, and MSCI All world since 1986 and over every 20 year period the Nasdaq 100 beats the S&P 500. I realise the lower dividend yield of the Nasdaq 100 flatters it somewhat, but the smallest difference in 20 year CAGR between Nasdaq 100 & S&P 500 commencing from 1986 to 2005 inclusive is 0.24%, which suggests that for each 20 year period except the one commencing on 1 January 2000 the Nasdaq 100 still wins out. The next lowest 20 year margin is 2.63% which (considering the S&P pays out dividends around 1% higher than the Nasdaq 100) suggests a real performance advantage to the Nasdaq 100 of 1.5% over that period.
  • My calculations suggest that this edge would leave my pension (with actual-to-date and planned future contributions) about 16% higher tracking the Nasdaq 100 at this advantage.
  • The median advantage to the Nasdaq 100 is about 4.5% over any given 20 year period, or 3.5% after accounting for higher S&P dividends. This leaves me about 45% wealthier by shoving my funds into the Nasdaq 100 tracker as compared to S&P 500.
Over any given 10 year period between 1986 and 2025, the Nasdaq 100 comes out ahead 90% of the time (median advantage of 4.5% assuming 1% lower dividends than S&P 500). Over any given 5 year period, the Nasdaq 100 comes out ahead 83% of the time (median advantage of 5% assuming the lower S&P dividends).

I've done this comparison between the MSCI & S&P also, and the S&P seems to have an edge, but it's so marginal that I'd consider it insignificant.

What I'm looking for is to understand the reason everyone seems to recommend global trackers rather than the Nasdaq 100 (or S&P for that matter), when past performance suggests the Nasdaq has a very clear advantage in expected returns even in the short term (and I'd consider 5 years to be very short term considering how long most people spend accumulating & spending their pension funds). Why is the advice to completely ignore past performance? Sure, past returns are no guarantee of future performance, but what has anyone got that's any better?
  • I appreciate that something like 70% of the all world index is made up of US companies, and that much of the S&P 500 supported by the Magnificent 7 which dominate the Nasdaq also.
  • The usual answer is "diversification" but between the MSCI Vs S&P in particular it looks like you may as well just flip a coin in terms of which one to buy.
I'd also like any recommendations anyone might have on alternatives to the Nasdaq 100.
  • I like money too much to consider either bonds or timing the market. I'm well aware that the Nasdaq is well overvalued, but I'm also well aware that such an overvaluation may be corrected by anemic growth for the next 10 years as by dropping by a quarter or half % in 2025.
Thanks.
 
If you are based in Ireland a bigger portion of your wealth should be in euro so you are not exposed too much to the dollar.
 
They're rolling 5, 10, & 20 year periods which I looked at. So return for 10 years starting in 1986, 10 years starting in 1987 etc etc.

I take your point about being exposed to the dollar but I looked at the dollar euro (and IR punt) exchange rates also. The dollar has been slowly getting stronger Vs €/IR£ over the last 40 years- like an annualised quarter of a percent slowly. I'm not concerned if that goes into reverse. I'm also not concerned about short-term currency fluctuations (if I was worried about short- or even medium-term volatility I wouldn't touch the Nasdaq with someone else's bargepole!).
  • Incidentally, inflation (based on CSO and Bureau of Labour CPI calculators, Jan 1986 to Jan 2025) in the US over the same period appears to be an annualised 0.5% higher than in Ireland over the same period. It seems counterintuitive that the dollar would get relatively weaker in the US at the same time as it gets relatively stronger against IR£/euro.
 
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Bump.

Does anyone have a numbers/comparative evidence based recommendations for alternatives to the Nasdaq 100? Ideally with referenced explanations?

Thanks.
 
Here is a good article which somewhat answers yout original question
www.morningstar.com

Should You Own Both QQQ and VOO?

The Nasdaq-100-focused ETF boasts an eye-catching record but doesn’t really help diversify.
www.morningstar.com www.morningstar.com

It's conclusion is that investing in the Nasdaq (vs S&P500) is better thought of as an active bet on the ongoing dominance of technology and artificial intelligence stocks. But how long they’ll continue to dominate is anyone’s guess.

My own conclusion is that it is a higher risk investment (than S&P or world) and so far that higher risk has worked out with higher rewards, but that might not always be the case.
 
Tax treatment should be the biggest consideration as performance difference is likely to be marginal over a broader fund relative to the tax implications, I'm in an Allianz technology investment trust and it's more or less matched the NASDAQ
 
BIG-notorious said:
  • The usual answer is "diversification" but between the MSCI Vs S&P in particular it looks like you may as well just flip a coin in terms of which one to buy.
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That’s the case for now, but if the global landscape shifts and successful Indian, Chinese, Vietnamese, or other public companies emerge, they would be added to the MSCI World Index but not the S&P 500, potentially causing the latter to lag. The same applies to the NASDAQ 100—today, non-financials are thriving, but in 10, 20, or 30 years, financials could dominate. While the S&P 500 or World Index would capture that shift, the NASDAQ 100 would not. Diversification must account for future possibilities.

Personally, I’m willing to take the risk and invest in a NASDAQ 100 ETF, but if a friend asked for financial advice, I’d recommend a World Index ETF—I can’t assume their risk tolerance.
 
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Diversification is the reason, which means less risk and less reward. The NASDAQ 100 invests in 100 companies in one sector, the one that has grown the most over the last number of years. But as we saw in 2022 when there was a tech stop wobble, there was nothing to cushion that blow. Energy had a strong year that year and being investing in energy as well as other sectors, reduced the fall.

All country includes Emerging Markets, which I don't feel are needed as they have underperformed and are more expensive. I use the Global Stock index which is developed world only.

If you are happy with the increased risk of the NASDAQ, go for it. Lots of people want that bit of diversification and accept lower returns as the trade off.
 
@AJAM @Steven Barrett

So basically it comes down, in your opinions, to risk tolerance & stability? More risk & volatility, more potential reward (or loss as the case may be)?

I buy that argument as a motivator. The Nasdaq 100 is a rollercoaster and I can well understand not being up for it.

The numbers suggest it's a consistent long-term winner, but I also get that many people panic and sell when the price drops which with this index is....rather frequent....If I needed my principal at any specific point in the next 5 years I sure wouldn't put it in the Nasdaq 100, but I've over 8 years until my earliest possible retirement date (and another 5 until I'm likely to be able to actually afford to retire) so I'm happy to enjoy the ride until then. Hopefully I'm not puking too badly when I finally get off!
 
Whatever about Chinese mega corporations becoming a force,I wouldn't be holding my breath for the other two countries being the home of dominant companies,even a global fund is over 90% North America, Europe and Japan and South Korea
 
Steven Barrett said:
All country includes Emerging Markets, which I don't feel are needed as they have underperformed and are more expensive. I use the Global Stock index which is developed world only.
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Bit of a contradiction in terms. The Emerging Markets are more expensive because they have underperformed ??? US markets have overperformed so they must be cheap despite having CAPE Shiller P/E ratios that put them in bubble territory ???? This statement makes no sense.
 
Bit of a contradiction in terms. The Emerging Markets are more expensive because they have underperformed ??? US markets have overperformed so they must be cheap despite having CAPE Shiller P/E ratios that put them in bubble territory ???? This statement makes no sense.
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The All country is more expensive than the global stock ETF and its returns are lower.
 
The numbers suggest it's a consistent long-term winner
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Forever? Energy used to be the consistent long-term winner. Knowing when to get off is the key.

Or investing in something like the S&P 500 that will adjust the weighting for you.
 
The Nasdaq 100 has already had its huge run , it's like you want to stay invested like it's 2001 , even in the relatively optimistic scenario that occurred with us tech, you still had to wait over a decade to get back to 2001 levels and also the huge devaluation in dollar, that has actually taken 20 years to get to 2001 exchange rates.
If you want a more pessimistic scenario look at the performance of the Japanese tech from 1980s, that took over 3 decades and the COVID inflation to finally come back to life again. Japan was still a very productive economy through all that time yet the Japanese stock markets were in the doldrums. Trump is tearing up the rule book and indications are that it's bad for US stock markets but paradoxically good for rest of world
 
"Forever? Energy used to be the consistent long-term winner. Knowing when to get off is the key."

It has been said many times in many ways that time in the market beats timing the market. I can't tell the future, I can only look at the past & the present. The numbers say that over the last 40 years the Nasdaq 100 has performed better than the alternatives (at least those I have looked at) over most time periods. (I totally ignore 1 year returns, I'm neither building up nor drawing down my entire pension or investments over the course of a single year).

@joe sod

That 2001 reference ignores dollar cost averaging. Very few people dump all of their money into any asset at one single point in time. The two biggest assets of most people are their pensions and their homes, both of which are (for the vast majority) purchased over the course of decades and used for decades. DCA'ing my current annual contribution (adjusting downwards by 2.5% a year to adjust for inflation) on 1 January each year from 2001 to 2020 gives a $5.40 for every dollar of my contributions on 1 January 2020. That's nowhere near being wiped out by either inflation or currency fluctuations
  • Dropping everything in on 1 January 2001 would leave you with $3.75 return on every dollar invested on 1 January 2020. Average euro bought you 92 cents in 2001 and $1.14 in 2020, so currency fluctuations would reduce that return to "only" €3.29 for every euro invested on 1 January 2001. According to the CSO's CPI calculator (the only one I care about because I live in Ireland) €1 in January 2001 was worth €1.33 in January 2020.
    • So no, it did not take 20 years to get your money back if you invested in the nasdaq 100 at 2001 levels

For any asset on the planet I can cherry pick data from two points in time which suggest that asset was either amazing or awful. In most cases I can probably find two points decades apart.

What I'm still asking for, and what I still haven't seen posted, is a pointer to an alternative to the Nasdaq 100 as long term investment option which is recommended on actual empirical data. Something more than "this time it's different" and "things might change" please.

And for god's sake leave out any and all references to scary orange monsters hiding under the bed.
 
@BIG-notorious Nasdaq 100 is effectively a single sector and single country index, it's far more concentrated and not an alternative in any way to globally and sectorally diversified indexes. Also it's recent past performance means that best estimate of expected returns from here must be significantly lower.
 
BIG-notorious said:
For any asset on the planet I can cherry pick data from two points in time which suggest that asset was either amazing or awful. In most cases I can probably find two points decades apart.
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It's not cherry picking, because now you are standing on top of one peak looking back down at the valley and the other peaks and saying oh the valley is not that deep and looks small from where I am standing, but you were never in the valley and did not know how deep it would it go, you are just postulating because you are standing on the peak, but you don't know it's a peak because you can only look back, the same as in 2008 when the valley was still going down you didn't know when the ground would rise again, so most investors paid for a helicopter lift out of the valley to another peak, . You weren't investing in tech back in 2002 to 2014 to see how painful that was (my educated guess) or Japanese technology stocks in 1980s , 90s to now. There is nothing exceptional about US technology, you just have to look at how Chinese AI stocks short circuited their way to the top of the pile.
 
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