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The Invesco QQQ ETF (NASDAQ: QQQ) is an index fund that mirrors the Nasdaq-100 index, which consists of the 100 largest U.S. and international nonfinancial companies listed on the Nasdaq Stock Market based on market cap. Since its inception on March 10, 1999, the exchange-traded fund has continued to grow in popularity, leading some to wonder if it’s worth the investment.
Here are three reasons you should consider investing in the Invesco QQQ ETF and one reason you shouldn’t.
Image source: Getty Images
1. It has outperformed the S&P 500 over the past decade
While historical performance is never an indicator of the future, it is worth examining the past results of a fund before investing. The S&P 500 is an index that tracks the 500 largest U.S. companies, and it’s one of the most popular indexes available and often used as the benchmark to determine how well other stocks are performing. The QQQ mirrors the Nasdaq-100, which means it’s technology-weighted, giving insight into how the technology sector is performing as a whole.
In the 10 years from Dec. 31, 2011, to Dec. 31, 2021, the Invesco QQQ ETF has outperformed the S&P 500 with an average annual return of 20.27% versus 14.26%. Had you invested $10,000 in both funds at the end of 2011, the Invesco QQQ ETF stake would be worth $78,517, and the S&P 500 investment would be worth $46,212.
2. It offers a dividend
It isn’t a given that an index fund will pay out dividends, but luckily, the Invesco QQQ ETF is one of them. With a 0.48% dividend yield, it’s far from a dividend-focused index fund, but even that yield can make a difference over time, especially with compounding.
If you were to invest $100,000 into an index fund with 10% annual returns and no dividend, you would have over $672,000 in 20 years without contributing another penny. If you invested that same $100,000 into a fund like the Invesco QQQ ETF with a 0.48% dividend yield, you’d have over $733,000 after those same 20 years.
3. It has high liquidity
Stock market exchanges are just what the name implies: exchanges. And with any exchange, there must be buyers and sellers to make it work; you can’t buy something nobody is selling, and you can’t sell anything if nobody is buying it. A stock’s liquidity is important because it determines how fast you can buy or sell a stock without the price drastically changing.
Stocks with low liquidity can be harder to sell, and you might not be able to buy or sell them at the price you intend to. This isn’t quite a problem for the Invesco QQQ ETF, however. Based on daily trade volume, it’s the second most frequently traded ETF in the U.S.
There are cheaper options to choose from
An index fund’s expense ratio is the annual fee charged for owning it. If you’re investing in a fund with a 0.10% expense ratio, you’ll be charged $1 per $1,000 that you have invested. While the Invesco QQQ ETF can be a solid investment, one of its faults is its relatively high expense ratio of 0.20% (or $2 per $1,000 invested).
Although a 0.20% expense ratio likely won’t break the bank, it’s worth pointing out how this compares over time to a fund that may have a low expense ratio like 0.03%. If you were to invest $500 monthly in both funds for 30 years with 10% annual returns, here’s how the totals would stack up after accounting for the expense ratio:
Index Fund
Expense Ratio
Account Value After 30 Years
Amount Paid in Fees
Invesco QQQ ETF
0.20%
$950,344
$36,620
Low Cost Fund
0.03%
$981,376
$5,588
Chart by author.
Even with a slight difference of 0.17%, over time, it adds up to more than $31,000 in extra fees paid for the Invesco QQQ ETF.
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Stefon Walters owns Vanguard S&P 500 ETF. The Motley Fool owns and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
