Some investors might not want to pick individual stocks for all or even some of their portfolios. This is where something like an exchange-traded fund (ETF) comes into the picture.
While an ETF that tracks the S&P 500 might get a lot of the attention because it is a top benchmark for assessing how the stock market is doing, there’s another ETF that investors need to consider that could potentially lead to stronger long-term returns. I’m talking about the Invesco QQQ Trust (NASDAQ: QQQ).
Here are four reasons why you should buy this ETF like there’s no tomorrow.
Portfolio composition
The Invesco QQQ Trust is unique in that it tracks the performance of the Nasdaq-100 index. This includes the top 100 non-financial companies that trade on the Nasdaq exchange.
It’s worth discussing the ETF’s composition. It’s heavily weighted in two sectors. Technology has a heavy presence, representing 59% of the fund’s assets, while consumer discretionary accounts for 18%. These areas of the market have typically been where many winners come from.
Investors are certainly familiar with some of the Invesco QQQ Trust’s top positions. The so-called “Magnificent Seven” combined make up a notable 42% of assets. They are some of the most dominant enterprises on planet Earth. And they have proven their ability to disrupt various industries.
The Invesco QQQ Trust also has 23% of the portfolio invested in sectors besides tech and consumer discretionary. This at least provides some level of industry diversification.
Impressive track record
If you’d invested $10,000 in the Invesco QQQ Trust 10 years ago, you would have $54,600 today. That translates into a superb 18.5% annualized return when including dividends. It’s hard to argue with this track record.
The Invesco QQQ Trust’s gain outpaces the 232% and 341% returns that the S&P 500 and the Nasdaq Composite index, respectively, have been able to achieve since June 2014. Again, it goes back to the broad exposure that this ETF has to the tech and consumer discretionary sectors.
Investors shouldn’t blindly assume that this top-notch performance is going to continue. But while past results don’t guarantee future returns, the companies that dominate the Invesco QQQ Trust generally have wide economic moats, solid growth prospects, and a focus on being leaders in the artificial intelligence race.
Don’t forget about fees
Some professionals in the investment industry are known for charging exorbitant fees for managing others’ capital. For example, typical active fund managers charge annual fees that are based on a percentage of assets that are managed. And hedge funds cost even more. Over a long period of time, these fees can seriously eat away at an investor’s return, so it’s important to be mindful of them.
Luckily, the Invesco QQQ Trust has an expense ratio of just 0.20%. This means that for every $10,000 that’s invested in the ETF, you only pay $20 in annual fees. That’s a very compelling proposition, particularly when you remember its impressive historical track record.
Low maintenance
Investors rightfully focus on the most obvious factors when looking at an ETF, like the previously mentioned composition, track record, and fees. However, there’s an overlooked aspect that deserves some attention.
If you’re someone who isn’t planning to retire for at least the next 10 years, then you can adopt a strategy of dollar-cost averaging into the Invesco QQQ Trust every month or quarter. This requires almost no effort on your part. It makes investing in the Invesco QQQ Trust a very low-maintenance way to build wealth.
And that leaves lots of time to focus on the things that are most important to you.
Should you invest $1,000 in Invesco QQQ Trust right now?
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
4 Reasons to Buy Invesco QQQ Trust Like There’s No Tomorrow was originally published by The Motley Fool
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