Because it includes 500 large, profitable businesses in the U.S., the S&P 500 is a popular benchmark to gauge the performance of the American stock market. It has done well for investors, producing a total return of 236% in the past decade, turning a $1,000 initial investment into almost $3,400 today.
Not many people will argue with the impressive returns that the S&P 500 has delivered. However, there is a magnificent exchange-traded fund (ETF) that follows a different index which investors should consider adding to their portfolios instead.
Massive companies built on tech and innovation
If you're not already, it's time to get familiar with the Invesco QQQ Trust (QQQ +0.39%). This ETF tracks the performance of the Nasdaq-100 Index, which includes the 100 largest nonfinancial companies that trade on the Nasdaq stock exchange.
This ETF is known for its heavy focus on tech stocks. The so-called "Magnificent Seven" make up 42% of the entire portfolio. This includes well-known names, like Microsoft, Apple, and Nvidia. The key theme that comes to mind is that these companies are known for being industry leaders that have strong financials and a culture of innovation.
Technology seems to be changing faster than ever these days. Not only does this make it difficult for even the experts to figure out what companies will grow and be tomorrow's leaders, it can make picking individual stocks seem like a very intimidating task to the average investor.
That's why the Invesco QQQ Trust deserves a closer look. By owning a broad basket of businesses exposed to what's happening in the tech sector, choosing single winners is not required.
Just to be clear, there are other areas of the stock market that investors will gain exposure to by buying this ETF. While the tech sector makes up 52% of the assets, the communication services (15.5%) and consumer discretionary (12.3%) sectors also shine.
NASDAQ: QQQ
Key Data Points
An impressive track record
I mentioned that the S&P 500 has generated a total return of 236% in the last 10 years. That's admirable, but it doesn't hold a candle to this ETF; the Invesco QQQ Trust has produced a total return of 455% since June 2014. That translates to a stellar annualized gain of 18.7%.
This is hard to beat. Most active fund managers don't come close to this.
It's no surprise that the tech and consumer discretionary sectors do well when the economic backdrop is robust. This was the case for most of the past decade. But even in a higher-rate environment, the ETF has performed extremely well, soaring 80% since the start of 2023.
Besides this impressive track record, which is the factor that investors probably think about most, this ETF charges a low expense ratio of 0.20%. So for every $500 invested, $1 goes toward paying the fee. This means that an investor gets to keep more of their money over time, a positive development.
Is it too late to buy?
As of this writing, the Invesco QQQ Trust sits near its all-time high levels. The market is experiencing lots of optimism right now. Perhaps investors believe that the economy will be able to bring down inflation and avoid a recession at the same time.
But this can make one wonder if now is still a good time to invest, particularly as the ETF trades close to its record. If you have a long time horizon, the starting point is inconsequential. Having more time in the market is what matters most.
Always remember that past results don't indicate forward returns. It's reasonable to expect future gains to come down from what was achieved in the last decade. But the Invesco QQQ Trust should continue to reward the patient investor.
