The investments you choose can make or break your portfolio, but it's not always easy deciding where to buy.
Exchange-traded funds (ETFs) can be a smart option for many investors, as they're low maintenance and require little effort on your part. Each ETF contains dozens or even hundreds of stocks bundled together into a single investment, taking the guesswork out of where to invest.
Some ETFs can also help supercharge your savings over time. While everyone will have different investing preferences, there's one fund that could potentially turn just $200 per month into more than $700,000 over time. Here's how.
Maximizing your long-term earnings
There are countless ETFs to choose from, but one popular option is Invesco QQQ Trust (QQQ 1.54%). This is a growth ETF that tracks the Nasdaq-100 Index, and it contains around 100 stocks from the largest nonfinancial companies listed on the Nasdaq.
Roughly 57% of the fund is made up of stocks in the tech sector, but it also includes stocks from other industries such as consumer discretionary, healthcare, and telecommunications. This provides a fair amount of diversification, which can limit your risk.
That said, this ETF is also designed to earn above-average returns over time. Over the past 10 years, QQQ has earned an average rate of return of 17.39% per year. Compare that to a broad-market ETF such as, say, the Vanguard S&P 500 ETF (VOO 1.00%), which has earned an average return of 11.77% per year in that timeframe.
To play it safe, let's assume your investment only earns a 13% average annual return -- which is slightly higher than the market's historic average of around 10% per year. If you're investing $200 per month, here's approximately how much you could earn over time:
| Number of Years | Total Portfolio Value: 13% Avg. Annual Return | Total Portfolio Value: 10% Avg. Annual Return |
|---|---|---|
| 20 | $194,000 | $137,000 |
| 25 | $373,000 | $236,000 |
| 30 | $704,000 | $395,000 |
| 35 | $1,312,000 | $650,000 |
Source: Author's calculations via investor.gov.
To reach $704,000 in total savings, you'll need to invest consistently for around 30 years while earning a 13% average annual return. But if you're able to continue investing for longer than that, you could potentially earn far more.
Risks to consider before you buy
Invesco QQQ is a powerhouse ETF that could potentially help you earn hundreds of thousands of dollars or more over time, but it's not without its risks.
Because it's a growth ETF, it's more volatile than many other types of investments. When the market is thriving, this fund often earns much higher-than-average returns. But during market slumps, it may be hit hard. Before you buy, be sure you're willing to tolerate more extreme ups and downs.
Also, there are no guarantees that this investment will beat the market over time. While its 10-year performance is promising, there's always a chance it could underperform. If you're willing to take on more risk for the chance at earning above-average returns, this could be the right ETF for you. But if you're a more risk-averse investor, an S&P 500 ETF or other broad-market fund may be a safer option.
The right investment can supercharge your savings, and Invesco QQQ can be a smart choice for many people. While it won't be the right fit for everyone, if you're looking for an ETF that takes the guesswork out of investing while potentially earning much higher-than-average returns, it could be a great addition to your portfolio.
