Investing in the Best Technology ETF Right Now

It's hard to argue with this booming ETF's historical performance.

The S&P 500 has produced impressive gains, delivering a total return of 253% over the past ten years. This is a remarkable achievement for a passive investment vehicle that offers broad exposure to various industries.

However, some investors are more interested in specific sectors, particularly technology. If this resonates with you, investing $1,000 in the Invesco QQQ Trust (QQQ) could be a wise choice. Here’s why.

Owning Major Tech Companies

The Invesco QQQ Trust is an exchange-traded fund (ETF) that mirrors the performance of the 100 largest non-financial stocks on the Nasdaq exchange. This differs significantly from the S&P 500, which follows the largest 500 U.S.-based firms.

Understanding the Invesco QQQ Trust’s composition is essential for investors. It has a significant focus on the information technology sector, which represents 51% of its assets. The so-called "Magnificent Seven" companies make up 43% of the ETF, showcasing their dominance.

Historically, this strategy has proven successful. These companies have demonstrated robust growth due to favorable trends, including advances in artificial intelligence, digital payments, digital advertising, electric vehicles, e-commerce, and cloud computing. Today, these seven firms rank among the world's most valuable.

Outstanding Performance

While the S&P 500 has been performing well recently, the Invesco QQQ Trust has outpaced it significantly. Over the past decade, QQQ has achieved a total return of 443%, averaging an annual gain of 18.4%. Thus, an investment of $1,000 made in October 2014 would exceed $5,400 today.

The low-interest-rate environment prevalent during much of this time has helped bolster the performance of top stocks within QQQ, enhancing investment returns.

Many investors may question whether owning this ETF is too costly. However, that is not the case. The Invesco QQQ Trust charges an expense ratio of just 0.2%. This means that for every $1,000 you invest, only $2 goes to fees each year, allowing you to retain more of your investment gains.

In contrast, the Ark Innovation ETF, led by Cathie Wood's Ark Invest, has gained significant attention in recent years. Despite its focus on innovative and disruptive companies, its performance has been disappointing. Over the past five years, Ark Innovation ETF has only returned 12.8%, compared to Invesco QQQ's impressive 164%. Additionally, Ark carries an expense ratio of 0.75%, nearly four times that of QQQ.

Factors to Consider

The Invesco QQQ Trust has enjoyed a strong year, increasing by 21.5% as of October 30. With the ETF trading close to its all-time high, some investors may hesitate and wonder if this is the right time to invest. Would it be better to wait for a market correction?

While market timing may seem appealing in theory, it is difficult to execute effectively. Most people find it challenging to consistently buy at the lowest prices and sell at the highest. In fact, trying to time the market can be detrimental to your portfolio.

A better approach is to consider going ahead with that $1,000 investment in the Invesco QQQ Trust now, adopting a long-term strategy. If you prefer to invest gradually, you could use a dollar-cost averaging strategy — investing smaller amounts on a monthly or quarterly basis. This method allows you to benefit from varying price points without the stress of timing the market perfectly.

Note: As of this writing, the author and their clients have no position in any of the stocks mentioned. This article does not reflect the opinions of any organization, and the author has no affiliations with any mentioned companies.

ETF, Investment, Technology