ETFs
Forget the S&P 500 – buy this beautiful ETF instead
High exposure to dominant technology companies has proven to be quite effective for this investment vehicle.
Because it brings together 500 large profitable companies in the United States, the S&P 500 is a popular benchmark index for measuring the performance of the U.S. stock market. It has been very successful for investors, generating a total return of 236% over the past decade, turning an initial investment of $1,000 into nearly $3,400 today.
Few will dispute the impressive returns of the S&P 500. However, there is a magnificent exchange traded fund (ETF) that tracks a different index that investors should consider adding to their portfolio instead.
Large companies based on technology and innovation
If you haven’t already, it’s time to familiarize yourself with Invesco QQQ Trust (QQQ -0.52%). This ETF tracks the performance of the Nasdaq-100 Indexwhich includes the 100 largest publicly traded non-financial companies Nasdaq Sotck exchange.
This ETF is known for its heavy concentration on technology stocks. The so-called “Magnificent Seven” represent 42% of the entire portfolio. This includes well-known names, such as Microsoft, AppleAnd NvidiaThe key theme that comes to mind is that these companies are known to be industry leaders, with strong financials and a culture of innovation.
Technology seems to be evolving faster than ever these days. Not only does this make it difficult for even experts to determine which companies will grow and become tomorrow’s leaders, but it can also make picking individual stocks very intimidating for the average investor.
That’s why the Invesco QQQ Trust deserves a closer look. By owning a broad range of companies exposed to what’s happening in the tech sector, there’s no need to pick single winners.
To be clear, there are other sectors of the stock market that investors will be able to gain exposure to by purchasing this ETF. While the technology sector represents 52% of assets, the communication services (15.5%) and consumer discretionary (12.3%) sectors also shine.
An impressive track record
I mentioned that the S&P 500 has generated a total return of 236% over the last 10 years. That’s admirable, but it’s no match for this ETF. The Invesco QQQ Trust has produced a total return of 455% since June 2014. This translates to an exceptional annualized gain of 18.7%.
It’s hard to beat. Most active fund managers are nowhere near that.
It’s no surprise that the tech and consumer discretionary sectors do well when the economic backdrop is strong. That’s been the case for most of the past decade. But even in a higher-rate environment, the ETF has performed extremely well, climbing 80% since the start of 2023.
Aside from this impressive performance history, which is the factor investors probably think about the most, this ETF charges a low spending rate of 0.20%. So for every $500 invested, $1 goes toward fees. This means an investor can keep more of their money over time, which is a positive development.
Is it too late to buy?
As of this writing, the Invesco QQQ Trust is near its all-time highs. There is a lot of optimism in the market right now. Investors may be thinking that the economy will be able to bring inflation down while avoiding a recession.
But it’s questionable whether it’s still a good time to invest, especially since the ETF is trading near its all-time high. If you have a long time horizon, the starting point is irrelevant. Having more time in the market is what matters most.
Always remember that past results do not indicate future returns. It is reasonable to expect that future gains will be lower than those achieved over the past decade. But the Invesco QQQ Trust should continue to reward the patient investor.
Neil Patel and its clients have no position in any of the stocks mentioned. The Motley Fool has positions and recommends Apple, Microsoft and Nvidia. The Motley Fool recommends Nasdaq and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a position in the stocks mentioned and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. disclosure policy.