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I made a quick table comparison of SCHD, QQQ and IVV, divided by sectors and SCHD and IVV are substantially overlapping. QQQ is much more IT focused, so my question is: does it make sense to own two EFTs like QQQ and IVV together or is it considered over-diversification because of the high number of stocks collectively owned?

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    You own no financials, no materials & essentially no utilities and materials with QQQ. If you only own QQQ you are overly dependent on the IT sector. If you only own IVV; you will miss out on gains (and losses) of that sector. For example, S&P500 droppen ~20% last year, Nasdaq 100 ~33%. Ultimately, IT tends to have higher volatility. If you do not want potential larger losses (at any given time period), you may want to avoid QQQ). On the other hand, QQQ performed very well prior to 2020. You may find this answer helpful (and all others there)
    – AKdemy
    Feb 4, 2023 at 20:23
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    @AKdemy this seems like an answer
    – littleadv
    Feb 4, 2023 at 20:53

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You own no financials, no materials & essentially no utilities and materials with QQQ. If you only own QQQ you are overly dependent on the IT sector. If you only own IVV, you will miss out on extra gains (and losses) of that sector. For example, the S&P500 dropped ~20% last year, Nasdaq 100 ~33%. Ultimately, IT tends to have higher volatility. If you do not want potential larger losses (at any given time period), you may want to avoid QQQ). On the other hand, QQQ performed very well prior to 2020.

Diversification never hurts. However, adding QQQ will actually make you less diversified because you will get more weight towards IT. The more you weight one sector, the more risk you will have. There is an interesting paper by Hendrik Bessembinder, Francis J. and Mary B. Labriola from ASU’s W. P. Carey School of Business which shows that

the largest returns come from very few stocks overall — just 86 stocks have accounted for $16 trillion in wealth creation, half of the stock market total, over the past 90 years. All of the wealth creation can be attributed to the thousand top-performing stocks, while the remaining 96 percent of stocks collectively matched one-month T-bills.

Insofar, what really matters is that you diversify - that way you will surely get the (future) winners. If you try to cherry pick (say predominantly IT sector stocks, or Xerox type "winners"), you will almost surely not be able to beat the average market in the long run.

Side remark, congrats for selecting ETFs. Active investing would almost surely leave you with less return. Below is a screenshot showing that the performance of active investment managers is generally very poor.

enter image description here

TL;DR

Past performance is no guarantee for future performance. The stock market declined in 2022:

  • S&P: -16.72%
  • Apple: -20.81%
  • Google: -32.57%
  • Amazon:-44.78%
  • Block Inc (Square): - 49.19%
  • Netflix: -51.1%
  • Meta (Facebook): -64.20%
  • Tesla: -65%

These are the worst performers in the S&P500 in 2022 (Tesla and Meta are part of QQQ):

enter image description here

Obviously, one may think the downturn may be short lived and IT always does well in the long run. On the other hand, This Washington Post article in 1998 writes that

Xerox shares topped the "Nifty Fifty" list of hot stocks during Wall Street's go-go years of the 1960s.

and the company

... has climbed 150 percent over the past two years.

The figure below shows the stock price of Xerox:

enter image description here

Maybe IT will do well going forward. However, no one knows for sure.

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    You went above and beyond, thank you @AKdemy !
    – Lorenzo
    Feb 6, 2023 at 11:31

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