Comparing Long-Term Investments: Nasdaq-100 vs Top S&P 500 Growth Stocks

When it comes to long-term investing, focusing on growth stocks can significantly enhance your potential for higher returns. Growth stocks tend to outperform dividend-paying stocks over time because they reinvest profits to expand their business rather than paying out cash to shareholders.

However, investing in growth stocks can come with a downside: they often face greater volatility, meaning their prices can fluctuate widely from year to year. Despite this, if you are looking at a long-term horizon of multiple years or even decades, growth stocks have demonstrated a consistent ability to outpace dividend stocks.

Instead of selecting individual growth stocks, many investors prefer to invest in exchange-traded funds (ETFs) that provide exposure to a broad range of growth stocks in one click. Two well-known ETFs in this category are the Invesco QQQ Trust (QQQ), which follows the Nasdaq-100 index, and the Vanguard S&P 500 Growth Index Fund ETF (VOOG), which focuses specifically on growth companies within the S&P 500.

So, which one is a better fit for your investment strategy today? Let’s explore further.

Performance Overview: Invesco QQQ vs Vanguard Growth ETF

Over the past decade, both the Invesco and Vanguard ETFs have performed well and have outperformed the broader market. However, the Invesco QQQ, which primarily includes top non-financial stocks, has shown to be a stronger performer during this period.

These funds have several similarities in their holdings. For instance, tech giants like Apple, Nvidia, and Microsoft are the leading positions in both ETFs. Notably, these three stocks constitute about 26% of the Invesco fund and approximately 35% of the Vanguard fund. While the Invesco focuses on 100 of the largest non-financial companies, the Vanguard fund contains over 230 stocks, offering broader diversification.

Market Risks for Both ETFs

The stock market has experienced significant growth recently, raising concerns that future returns may not be as robust. This increased speculation casts a shadow over both ETFs, making them potentially vulnerable to short-term declines.

Due to its broader stock mix, the Vanguard fund could withstand a market downturn more effectively than the Invesco fund. On the other hand, with Invesco’s lesser exposure to leading stocks like Apple, Nvidia, and Microsoft, it might face less pressure if those stocks become overvalued and underperform.

Looking at long-term potential, both ETFs offer solid investment options irrespective of immediate market movements. The decision on whichever fund aligns better with your strategy may come down to the level of diversification you prefer and your overall interest in technology stocks.

Approximately 50% of the Vanguard fund comprises tech stocks, while nearly 60% of the Invesco ETF is made up of tech companies. While tech stocks can yield exceptional returns, they can also be susceptible to sharp sell-offs if high valuations become unsustainable.

Invesco QQQ: A Long-Term Champion

The Invesco ETF provides less diversification than the Vanguard option, which might be a drawback for some short-term investors. However, in the long run, its focused approach may deliver more considerable returns due to its more concentrated investment in high-performing growth stocks. Excessive diversification can sometimes hinder an ETF's performance.

While it is essential to avoid risk concentration related to only a few stocks, the Invesco QQQ maintains a balanced approach, with its largest holding (Apple) making up just 9% of its overall portfolio. If you can ride out short-term market fluctuations, the Invesco fund appears to be a compelling option for long-term investment.

Disclaimer: This article does not constitute investment advice and should not be taken as guidance. Always consult with a financial advisor before making investment decisions.

investment, growth, stocks