ETFs
Forget the S&P 500: buy this magnificent ETF instead
Investors have made money by investing in this booming ETF.
It’s no surprise that most investors turn to S&P500 when trying to evaluate the evolution of the stock market over a certain period of time. This index of the 500 largest and most profitable American companies has many exchange traded funds (ETF) that track its performance.
The S&P 500 has produced a total return of 235% over the past 10 years. That’s a respectable track record, but there’s one magnificent ETF that has absolutely crushed that performance.
A remarkable performance
If you had invested $1,000 in an S&P 500 ETF ten years ago (and reinvested the dividends), you would have about $3,350 today. But if you had put that same amount into Invesco QQQ Trust (QQQ 0.24%), you would be sitting on $5,170 now, which translates to a superb total return of 417%.
The stark difference between these two results is due to the composition of this particular ETF. The Invesco QQQ Trust consists of the 100 largest companies (excluding financials) traded on the market. Nasdaq Sotck exchange. These companies are leaning towards innovative and disruptive companies, with 59% and 18% of the fund’s portfolio belonging to the technology and discretionary consumption sectors, respectively.
These industries generally have much better growth potential than the average S&P 500 component. The flip side is that they also have higher valuations.
The fact that Invesco QQQ Trust has an extremely high concentration in the “Magnificent Seven“These tech giants have been big winners over the past few years, thanks to major secular trends that have worked in their favor.
Focus on details
The beauty of ETFs is that not only do they provide investors with broad exposure, they often do so at low cost. THE spending rate of the Invesco QQQ Trust is only 0.20%. So for every $1,000 you invest in the ETF, you pay $2 in annual fees.
For comparison, consider the Arche Innovation ETF, the flagship investment product from Cathie Wood and Ark Invest, which currently has $7.8 billion in assets. The Ark Innovation ETF has generated a 7% loss over the past five years, far behind the Invesco QQQ’s 139% return over the same period. However, the Ark ETF has an expense ratio of 0.75%, almost four times that of the Invesco ETF. The combination of strong returns and low fees is what makes the Invesco QQQ Trust so attractive.
There’s another benefit to investing in an ETF: the simple fact that you don’t need any special skills or knowledge to grow your money in the market. Identifying individual stocks and building a diversified portfolio of those stocks requires a lot of time and effort. Adopting a low-maintenance investment like this can also help you stay on track for the long term.
Buying at the highest remains the right decision
As of this writing, the Invesco QQQ Trust is near its all-time high. The stock market has experienced tremendous development since the start of 2023, boosting many technology stocks in the process.
You may be wondering if it’s still a good time to invest. To cut to the chase: yes, it does. It’s natural to worry that the ETF will decline in the short term – this is especially the case given the many factors currently influencing the market, including major geopolitical conflicts, inflation and the upcoming US presidential election. You might be tempted to wait for a downturn before investing.
The problem, however, is that it is incredibly difficult to time your investment correctly to avoid the worst days and capture the best days. But if you have a time horizon that spans years or even decades, the starting point matters much less. The most important thing is to start from the beginning.