Is Invesco QQQ Trust a Buy? | The Motley Fool (2024)

Most investors like to follow the S&P 500, the Nasdaq Composite Index, or the Dow Jones Industrial Average. But there's another popular index that has crushed the performance of these three.

I'm talking about the Invesco QQQ Trust (QQQ 0.45%). In the last decade, including dividends, this top exchange-traded fund has soared an impressive 446%. This means that a $1,000 initial cash outlay back then would be worth almost $5,500 today.

Now that the Invesco QQQ Trust is near all-time highs, some investors might be thinking it's too late to get in. Is this ETF a buy right now?

Focus on tech and innovation

The Invesco QQQ Trust tracks the performance of the Nasdaq 100 Index, which contains the 100 largest nonfinancial companies listed on the Nasdaq exchange. The fund prides itself on giving investors access to businesses at the cutting edge of various technologies, like cloud computing, big data, and artificial intelligence.

Because these types of companies are growth-oriented, they have the potential to produce strong returns over time. That's certainly been the case here.

It shouldn't be a shock that the "Magnificent Seven" make up a sizable chunk of the Invesco QQQ Trust. Combined, Microsoft, Apple, Nvidia, Amazon, Meta Platforms, Alphabet, and Tesla represent a whopping 40% of the fund. The monster performance of these select stocks in the past decade has definitely propelled the Invesco QQQ Trust.

The price-to-earnings ratio of the average company in the Invesco QQQ Trust is 34.4. That's on the expensive side. However, I still believe it's smart to consider investing. Valuation doesn't matter as much if you have a long time horizon. For investors seeking the potential for higher returns, this is a good choice.

Other factors to keep in mind

The obvious reason to want to invest in the Invesco QQQ Trust is its remarkable track record of compounding investor capital. However, there are other factors that investors should think about.

For starters, all ETFs charge fees for providing these investment vehicles. In this case, the Invesco QQQ Trust's expense ratio is just 0.2%. Paying less annually means that investors keep more of their returns over time. That's a sweet deal.

What's very interesting is that in the last five years, Invesco QQQ Trust (total return of 158%) has even outperformed the Ark Innovation ETF (total return of 13%), a fund managed by Cathie Wood and her team. The latter focuses on the most disruptive businesses, but its expense ratio is 0.75%. It's clear which ETF has been the better choice for investors.

Picking individual stocks requires a meaningful commitment to analyzing financial statements, listening to earnings calls, and managing a portfolio. Even professional money managers aren't great at all that.

That's why going with a worthwhile option like the Invesco QQQ Trust is such a smart move. You don't need to put aside time to size up specific companies. And you don't need to be a financial expert. That's a huge advantage.

To supercharge returns, investors can fully automate a dollar-cost average strategy. Savings will be added to your Invesco QQQ Trust holdings regularly, helping build a healthy habit of consistent investing.

I'll also point out that while the Invesco QQQ Trust's historical returns are truly wonderful, investors must practice patience and have a long-term mindset. Because the ETF is tech-focused, volatility is typically higher than in more stable businesses. Just be prepared for the inevitable ups and downs along your investing journey.

Now sit back, relax, and let the Invesco QQQ Trust take your portfolio to new heights.