Investing in a Prolific ETF that Transformed $10,000 into $55,000 over a Decade: Is It Wise to Invest in 2025?
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The S&P 500 (GSPC -0.29%) may be a popular benchmark for assessing overall market performance, but over the past decade, it's been outperformed by a single, impressive exchange-traded fund (ETF). If you invested $10,000 in this ETF 10 years ago, it would now be worth an eye-popping $55,300 (453% total return).
But is this ETF, the Invesco QQQ Trust (QQQ -0.56%), still a wise investment in 2025?
A Track Record to Behold
If you're yet to discover the QQQ, it's time to get acquainted. This ETF closely follows the Nasdaq-100 index, containing the 100 largest non-financial companies on the Nasdaq Composite exchange. It's an excellent choice for investors seeking specialized exposure to the economy.
The QQQ's impressive performance can be attributed to its high concentration in two booming sectors: technology and consumer discretionary. These industries are driven by powerful, long-term trends, such as cloud computing, digital advertising, and digital payments. This translates to sustained growth.
In fact, the so-called "Magnificent Seven" – the seven biggest businesses in the ETF, representing 44% of its total assets – are integral to its success. The QQQ's results are heavily dependent on these powerhouse businesses.
The Allure of the QQQ
Beyond its performance, the QQQ offers an attractive expense ratio of just 0.2%. Compare this to the Ark Innovation ETF (ARKK -0.57%), which charges 0.75%, despite significantly poorer returns. The lower fees allow investors to retain more of their money over time.
Moreover, the QQQ's low maintenance requires minimal effort from investors. There's no need to single out individual winners in tech trends, nor does it call for top-notch financial analysis skills. This saves precious time.
Embracing Patience
With the QQQ trading at record highs, it's natural for investors to wonder if now is the right time to invest. While unexpected events can occur in the near future, my perspective is that long-term ownership of the ETF is a prudent move. Cultivating patience can increase the likelihood of a favorable outcome.
That's not to suggest that future returns will match the past's astronomical gains. But a strategic, dollar-cost-average strategy into the QQQ as part of a diversified portfolio makes sense in 2025. This approach offers growth potential and exposure to some of the world's dominant enterprises – a time-tested winning bet.
Enrichment Insights:
- Diversification and Exposure to Tech Giants:
- By investing in the QQQ, you gain diversified exposure to a group of large-cap growth companies in the Nasdaq-100 index, including tech titans like Apple and Microsoft. This broad exposure to the tech sector can be advantageous, as the tech industry has historically been a key driver of market growth.
- Risk Management and Covered Calls:
- As interest rates on 10-year Treasuries approach their 52-week highs, the risk to the QQQ has increased. Higher implied volatility makes selling covered calls more desirable. This strategy allows you to collect a premium for providing downside protection, mitigating potential losses.
- Active Management Alternatives:
- For investors who prefer active management, the T. Rowe Price Blue Chip Growth Fund (TRBCX) might be a suitable alternative. With seasoned fund managers at the helm, this fund boasts potential for better performance over time, but it carries a higher expense ratio compared to the QQQ.
- Cost-Effective Options:
- A lower-cost alternative is the Invesco Nasdaq 100 ETF (QQQM), with an expense ratio of 0.15%. Providing similar exposure to a basket of large-cap growth companies in the Nasdaq-100, it's a more budget-friendly option for investors seeking similar benefits.
- Dividend Yield:
- The QQQM also offers a dividend yield of 0.59%, which can provide additional income for investors seeking a combination of growth and income.
- Market Performance and Growth Potential:
- Over the past five years, the QQQ has shown impressive growth, earning over 130%. This indicates that it can be a reliable option for investors seeking capitalization on tech-heavy indices' expansion potential.
- Risk Considerations:
- As with any investment, it's essential to consider the risks associated with the QQQ, including market volatility and the impact of economic conditions. The prospectus and annual report offer more detailed information on the risks involved.
Investing in the QQQ, due to its low expense ratio of 0.2%, allows investors to retain more of their money over time compared to higher-fee options like the Ark Innovation ETF. With a strategic, dollar-cost-average strategy into the QQQ as part of a diversified portfolio, investors can gain exposure to some of the world's dominant enterprises and potential for growth.
