Despite the latest turmoil that's rattling the market due to concerns about how President Donald Trump's trade policies will play out, the S&P 500 index has done a good job compounding investor capital over the long run. In the past 10 years, the widely followed benchmark has produced a total return, including dividends, of 194%.
However, there is one exchange-traded fund (ETF) that has absolutely trounced the broader S&P 500. Had you invested in the Invesco QQQ Trust (QQQ +0.49%) in April 2015, you would have registered a spectacular total return of 333%. No one will argue with that kind of outcome.
Should you buy the QQQ right now and hold it for 10 years? Investors must know important information before making that decision.
Exposure to powerful secular trends
Investors will gain different exposure in their portfolios with the Invesco QQQ Trust, which tracks the performance of the Nasdaq 100 index. This includes the biggest nonfinancial companies that trade on the Nasdaq exchange. That's in stark contrast to the S&P 500's composition.
While every sector is represented, there is an unusually high concentration in the technology and consumer discretionary sectors. That shouldn't be surprising because the "Magnificent Seven" stocks combined make up 40% of the entire portfolio. These companies have generally performed very well in recent times.
It's crucial for investors to realize that the QQQ is essentially a bet on various technology-focused secular trends shaping our economy. For example, this ETF will ensure you benefit from ongoing growth within digital payments, cloud computing, digital advertising, streaming entertainment, and perhaps the most powerful, artificial intelligence.
The beauty of choosing to invest in the Invesco QQQ Trust is that it provides instant diversification. There's no need to pick single stocks that might be the big winners of tomorrow. Instead, it's a basket approach that has worked out quite well in the past. And all it costs investors is a 0.2% expense ratio.
What to expect
As of this writing, the Invesco QQQ Trust trades 18% below its record high, which was established in February. A significant decline like this can definitely be unnerving for some investors, particularly when you see your net worth fall so much in such a short period of time. The natural reaction can be to hold off on buying, or maybe even dump your holdings. This would be a mistake.
The market's turmoil presents a lucrative buying opportunity. It's worth mentioning that the QQQ has experienced multiple major drawdowns historically. It can certainly be very scary when living through it. The market is known to be extremely volatile at times. But it should alleviate investor concerns knowing that this ETF has always bounced back to reach new all-time highs.
Patient investors who can look past the near-term uncertainty and focus on the big picture are inevitably rewarded. And I believe this will happen again, even though the Invesco QQQ Trust's future returns may or may not resemble those in the past.
The market downturn can be viewed as an advantage, particularly from a valuation perspective. The Magnificent Seven contain some of the most dominant and innovative businesses the world has ever seen. And today, the group trades at a median forward price-to-earnings ratio of 27.5. Given the general growth potential and impressive profitability of those companies, that valuation doesn't look unreasonable by any means.
The best thing investors can do is to consider starting to put money to work in the Invesco QQQ Trust today while it's well off its peak -- and dollar-cost average every month or quarter. This extra cash inflow can have a serious effect on returns over the next 10 years.
