Earning a great return in the stock market doesn't necessarily mean you have to be great at picking individual stocks. Exchange-traded funds (ETFs) can give you a simpler way of investing, and the good news is you can still earn a fantastic return by doing so.
Some ETFs target top growth stocks and can provide you with exposure to many great businesses. And they do regular rebalancing and reconstruction, so you don't have to worry about having to closely monitor which stocks are still good buys and which ones may have become too risky.
A top-performing fund that is popular with investors is the Invesco QQQ Trust (QQQ +1.03%). It tracks the Nasdaq 100 index, with exposure to the top 100 nonfinancial stocks on the exchange.
These will include popular tech stocks as well as top-performing stocks in other industries. Although it has performed exceptionally well over the years, the fund can still be a great place to invest for the long haul.
The Invesco fund has significantly outperformed the market over the years
To say that the Invesco fund has been a market-beating investment for decades would be a massive understatement. Since 2005, its total returns (which include dividends) have come in at more than 1,400% -- far higher than the S&P 500 over that stretch.
To put that into perspective, a $25,000 investment in the fund 20 years ago would be worth around $380,000 today. Meanwhile, a similar investment in a fund that mirrors the S&P 500 might only be worth $180,000.
While investing in the S&P 500 can be a good way to hold a broad mix of stocks, the benefit of the Invesco fund is that with a more concentrated portfolio of top growth stocks, it can generate superior returns. There may be volatility from one year to the next, but over the long haul, growth stocks generally outperform other types of investments.
Why the Invesco fund isn't in danger of running out of upside anytime soon
Although the Invesco fund has produced incredible returns, and you might be worried about the valuations of high-performing growth stocks, it's still possible for this ETF to continue outperforming the market.
The simple reason comes back to it tracking the Nasdaq 100, which undergoes regular reconstruction and rebalancing. Unlike a hot growth stock that may run out of steam, the Nasdaq 100's composition will change over time, giving it more room to rise.
Last month, for example, it completed its annual reconstruction and upon doing so, removed multiple stocks: Illumina, Super Micro Computer, and Moderna. They were replaced in the index with Palantir Technologies, MicroStrategy, and Axon Enterprise.
The index may be susceptible to high valuations, but by focusing on just the best of the best, it means funds that track the Nasdaq 100 can be in excellent positions to outperform the market in the long run.
Investing in the fund regularly can be a solid long-term strategy
Even if you're worried that valuations might be high on the Nasdaq today, investing regularly in the Invesco fund can be a good way to balance out your risk. Investing a regular monthly amount in the fund can build up your position over time, ensuring that you aren't too worried about trying to time the market and waiting for an ideal buying opportunity, which may never come along.
By continuously investing, if the ETF drops in value, you are averaging down your position. And if it rises, you're benefiting from strong market conditions and buying into the rally along the way. Either way, investing in the fund on an ongoing basis can make for a great long-term strategy and be an effective way to grow your portfolio at a potentially higher rate than just trying to track the S&P 500.
