While some may consider index fund investing boring, there is no easier way to put yourself on a path to success than consistently adding to an index fund. In fact, I'd argue that many investors would be better suited to doing this than buying individual stocks they don't have the stomach to hold when the market turns south.
Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) CEO Warren Buffett shares this belief and my favorite index fund is the Invesco QQQ (QQQ 1.54%), an exchange-traded fund that tracks the Nasdaq-100. But could investing in this fund really make someone a millionaire?
The Invesco QQQ is heavily concentrated in 10 stocks
The financial media often refers to this index as the "tech-heavy Nasdaq-100," and for good reason. It has a high concentration of tech companies because so many of them chose to list on the Nasdaq exchange rather than the New York Stock Exchange (NYSE) when they went public.
Just take a look at the 10 largest QQQ positions.
| Company | Allocation |
|---|---|
| Apple (NASDAQ: AAPL) | 11.1% |
| Microsoft (NASDAQ: MSFT) | 10.4% |
| Amazon (NASDAQ: AMZN) | 5.6% |
| Nvidia (NASDAQ: NVDA) | 4.5% |
| Meta Platforms (NASDAQ: META) | 4% |
| Broadcom (NASDAQ: AVGO) | 3.2% |
| Alphabet Class A (NASDAQ: GOOGL) | 3.1% |
| Alphabet Class C (NASDAQ: GOOG) | 3% |
| Tesla (NASDAQ: TSLA) | 2.8% |
| Adobe (NASDAQ: ADBE) |
2.3% |
Data source: Invesco.
If you add up those positions, you'll see that half the value of the QQQ is in these 10 mega-cap tech stocks, so the fund's performance is directly tied to their success. But being invested in them has been a fantastic strategy over the past decade. I also think it will be great moving forward.
Just think of the tailwinds that are blowing behind each of these businesses. Artificial intelligence (AI) is a huge part of the growth thesis for many of the stocks in the top 10. There are also trends like electric vehicles, cloud computing, and e-commerce represented, making an investment in QQQ an investment in the future.
Compounded growth can do remarkable things
Over the past decade, the QQQ's compound annual growth rate (CAGR) has been 17.5%. How many investors have put up a 17.5% CAGR over the past decade? Very few. Still, you would have had to put $200,000 into the QQQ a decade ago to have a million-dollar-plus holding today.
But what about over a longer time frame? Over the past two decades, the QQQ posted a CAGR of 13.6%, which is a more reasonable expectation. If you put $250 a month into an investment that delivered an annualized return of 13% over the long haul, in 30 years, your investment would be worth nearly $1.1 million.
Now, a 13% annualized return is still an extremely high bar and far exceeds the broad market's long-term average. However, given its significant concentration in some of the most important companies today, I'm confident that the QQQ will provide market-beating returns in the future.
With a buy-and-hold mindset and a steady cash stream, the QQQ could provide a low-effort way to become a millionaire when you retire.
