It’s no surprise that most investors look at the S&P 500 when trying to assess how the stock market has performed over a certain period of time. This index of the 500 largest and most profitable U.S. companies has many popular exchange-traded funds (ETFs) that track its performance.
The S&P 500 has produced a 235% total return in the past 10 years. That’s a respectable track record, but there’s one magnificent ETF that has absolutely crushed that performance.
A remarkable performance
If you invested $1,000 in an S&P 500 ETF a decade ago (and reinvested any dividends), you’d have about $3,350 today. But had you put that same amount in the Invesco QQQ Trust (NASDAQ: QQQ), you’d be sitting on $5,170 now, translating to a superb total return of 417%.
The striking difference between these two results is due to the composition of this particular ETF. The Invesco QQQ Trust consists of the largest 100 companies (excluding financial stocks) trading on the Nasdaq stock exchange. These companies lean toward innovative and disruptive enterprises with 59% and 18% of the fund’s portfolio falling in the technology and consumer discretionary sectors, respectively.
These industries generally exhibit much better growth potential than the average S&P 500 constituent. The flipside of this situation is they also carry more expensive valuations.
It has helped, especially in recent times, that the Invesco QQQ Trust has an extremely high concentration in the “Magnificent Seven.” These tech giants have been huge winners over the past several years, thanks to broad secular trends working in their favor.
Focus on the details
The beauty of ETFs is that not only do they provide investors with broad exposure, but they often do so at a low cost. The expense ratio of the Invesco QQQ Trust is just 0.20%. So, for every $1,000 you have invested in the ETF, you’re paying $2 in annual fees.
By comparison, consider the Ark Innovation ETF, Cathie Wood and Ark Invest’s flagship investment product, which currently has $7.8 billion in assets. The Ark Innovation ETF has generated a 7% loss in the past five years, lagging far behind the Invesco QQQ’s 139% return over the same period. However, the Ark ETF has an expense ratio of 0.75%, nearly four times that of the Invesco ETF. The combination of strong returns and low fees is what makes the Invesco QQQ Trust so attractive.
There’s another benefit to investing in an ETF: the simple fact you don’t need any special skills or knowledge to put your money to work in the market. Identifying individual stocks and establishing a diversified portfolio of those stocks requires significant time and effort. Adopting a low-maintenance investment like this can also help you stay the course over the long term.
Buying at the highs is still the right decision
As of this writing, the Invesco QQQ Trust is sitting near its all-time high. The stock market has had a terrific run since the start of 2023, boosting many tech stocks along the way.
You may be wondering if now is still a good time to invest. To get straight to the point: Yes, it is. It’s natural to worry the ETF could decline in the near term — that’s especially the case given the many factors influencing the market right now, including major geopolitical conflicts, inflation, and the upcoming U.S. presidential election. You may be tempted to wait for a pullback before investing.
The issue, however, is it’s incredibly difficult to correctly time your investment to avoid the worst days and capture the best days. But if you have a time horizon that spans years or even decades, it matters far less where you start. The most important thing is getting started in the first place.
Should you invest $1,000 in Invesco QQQ Trust right now?
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
Forget the S&P 500 — Buy This Magnificent ETF Instead was originally published by The Motley Fool