Deciding which tech stock to buy can be overwhelming. A lot of hype often surrounds tech stocks, and with excitement about artificial intelligence abounding in the marketplace, right now may seem like a precarious time to invest.
However, one tech investment stands out above all others that investors should have in their portfolios. What is this Goldilocks investment?
Yes, it's an index fund
The Invesco QQQ ETF (QQQ 1.54%) is an index fund that tracks the Nasdaq-100 index, which captures the 100 largest non-financial companies listed on the Nasdaq exchange. But why does this make it the best investment to make in tech?
Many of the world's top tech stocks (Like Microsoft, Apple, and Amazon) chose to list on the Nasdaq when they went public. This trend has continued for a long time, and the index is often known as the "tech-heavy Nasdaq" as a result.
Because the index contains the top tech stocks in the world, the QQQ (which tracks it) has become an easy-button for tech investors. Instead of needing to buy individual stocks to form a well-diversified tech portfolio, you can just buy one and get all of the diversification you need.
This is great for new and experienced investors alike, as it frees up time to research individual companies with more upside than the index as a whole.
But what exactly are you buying when you purchase a QQQ share? Let's take a look.
The makeup is top-heavy
Here are the top 10 largest holdings and their weighting in the QQQ:
| Company | Makeup of QQQ |
|---|---|
| Apple | 10.59% |
| Microsoft | 9.64% |
| Alphabet (Class A and C shares combined, formerly known as Google) | 6.27% |
| Amazon | 5.69% |
| Nvidia | 4.31% |
| Meta Platforms (formerly known as Facebook) | 3.70% |
| Tesla | 3.35% |
| Broadcom | 2.98% |
| Adobe | 2.08% |
| Costco | 2.06% |
Data source: Invesco. Holdings as of Sept. 14, 2023.
Costco aside, these companies have made some of the best tech investments of the past decade (Costco has also been a fantastic investment in its own right.) But with how large these businesses have become, these 10 make up 51% of the entire index.
So, the direction of the index is heavily steered by the top 10, but smaller components can still have an effect with big gains.
With the QQQ's tech-heavy makeup, it's no surprise that it has performed well this year, up around 40% compared to the S&P 500's 17% gain.
But that performance isn't just isolated to one year. Over the past decade, the QQQ trounced the broader market, up 418% versus the S&P 500's 216% total return. With the largest companies only becoming more prominent and growing rapidly (just look at Nvidia's latest quarter), it wouldn't be a surprise to see this index continue to outperform the S&P 500 by a wide margin. That type of return also makes the expense ratio of 0.2%, or $20 per $10,000 invested, well worth the price.
So, if you're looking to invest in tech, there are few better places to start than the QQQ index fund. It provides instant diversification across many prominent tech companies with a proven track record of success. By starting there, you can get invested while searching for more lucrative opportunities in the market. Because the QQQ is an ETF (exchange-traded fund), it can be bought and sold like a stock in your brokerage account whenever you want.
This convenience and diversification make the QQQ a no-brainer investment for every portfolio.
