ETFs can help investors prepare for the next major stock market crash by rebalancing individual stocks based on their current market capitalization in the underlying index, ensuring they are positioned for the next market shift.
The cream rises to the top, while the weak wither. Nvidia, for instance, has risen to the third largest weighting in any market-weighted ETF tracking the Nasdaq 100, overtaking “FAANG” stocks like Amazon, Meta, and Alphabet, boosting the index’s value by over 35%.
Invest Smart: Purchase the Entire Market Index
AI-Based Stocks and Market-Weighted ETFs
- AI-based stocks have surged, removing guesswork for future trends.
- Market-weighted ETFs automatically allocate larger portions to hottest stocks and smaller portions to weaker ones.
- Nasdaq 100 ETFs invested in tech heavyweights like Palm Inc., Red Hat, JDS Uniphase, and Canada’s Research in Motion (now Blackberry) in 2000.
- Since 2000, these companies have faded from the index to popular FAANG stocks.
- The Nasdaq 100’s value has ballooned by over nine times due to company changes.
Include Up-and-Comers from Diverse Sectors in Your Portfolio
Nasdaq’s Technology Index and Other ETFs
- Nasdaq’s technology index comprises 60% technology stocks.
- Other ETFs focus on specific sectors like healthcare, biotech, genomics, and pharmaceuticals.
- Novo Nordisk’s 47% rise in shares has led to VanEck Pharmaceutical ETF’s 60% gain.
- Health-care ETFs are used by multi-billion dollar money managers to hedge against risk from unpredictability of a company’s product or regulatory approval.
ETF Strategies for an Unpredictable Market
ETF as a Diversification Tool for Retirement Investors
- ETF offer protection against the full downside impact of companies that fail, making them ideal for retirement investors.
- A portfolio of ETF spans all major sectors and regions for total diversification.
- ETF charge annual fees based on a percentage of the invested amount, potentially affecting the underlying index’s performance.
- Canadian investors should invest using U.S. dollars, as U.S. dollar trading accounts are permitted in RRSPs and TFSAs.