Nowadays, with all the fluctuations in the market and the banks and companies going bankrupt, it’s harder to find safe and reliable deals to invest in. In fact, risk and financial markets are two words with a stronger connection than you might think and you pretty much see them together every time.
There are times when the economic future seems to be promising and you feel more confident to invest in riskier businesses and times where pessimism reigns and you only feel comfortable investing in safer and more reliable deals. This is because the “risk” is cyclical, being lower when the economy is blooming and higher when the economy is in recession. When you are willing to risk more, the award is bigger than if you take a safer route towards the main goal, profit. It is more likely for you to lose what you have invested, but keep in mind that without risk, there is no gain.
The SPDR S&P 500 ETF (SPY) Trust is an exchange traded fund (ETF) traded in the New York Stock Exchange that tracks the S&P 500’s index performance. These are used as a low-cost passive investment for those who consider that indexes are better than active management and want to track the market development and all its changes. PowerShares QQQ Trust (QQQ) is also an exchange traded fund traded in NASDAQ that tracks the 100’s index performance. It provides to the investors and traders a glance of how some of the biggest technology companies are trading their stocks.
Some investors think that buying SPY is a better option than buying PowerShares QQQ Trust (QQQ), which are considered riskier. This is a very common misconception about QQQ; if you take a look to their fluctuations in a long term you quickly realize that it’s actually the opposite. These investors and/or traders consider that because they acknowledge volatility (degree of variation of a trading price series over time as measured by the standard deviation of returns for market index) as risk and not as an opportunity. As a matter of fact, it all depends on time.
If you know you will need the money you’ve invested in a short period or if you want a regular income from it, you have to look to volatility as a risk. If you know you won’t need the money for a long period of time (for example 10 or more years) than volatility doesn’t matter and you are facing a huge opportunity.
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The best time to invest in QQQ, despite what you might think, is when they are having worse results than the so called “safe” investments (these are the times when the pessimism is high and the markets are down). The best time to invest in SPY is when the confidence in the markets is high, being able to consummate better deals in this time with SPY than with QQQ. Keeping that in mind and knowing that the riskier PowerShares QQQ Trust (QQQ) is currently performing under the safer ones, this is the perfect time to start buying them.