Is the Invesco QQQ ETF a Millionaire Maker?

The Invesco QQQ (QQQ -0.32%) has established a reputation as one of the top-performing index-based exchange-traded funds (ETFs) available. This ETF is designed to track the Nasdaq-100 index, which includes the 100 largest companies listed on the Nasdaq stock exchange.

Since its inception in 1999, the Invesco QQQ has outperformed the S&P 500 by over 400 percentage points. However, the question remains: can this ETF truly be a millionaire maker? Let’s delve into the details.

Strong Technology Focus

Investing in the Invesco QQQ essentially means investing heavily in the technology sector. Approximately 60% of the ETF's holdings are technology stocks, which is beneficial because tech companies have consistently led the market for decades.

Today, many of the world’s largest and most influential companies are involved in technology or are closely associated with it. Within the S&P 500, eight out of its top ten holdings are technology-related companies. As technology continuously reshapes our world, these companies have risen to dominate the global market.

We are currently witnessing the early stages of a significant technological evolution—namely, artificial intelligence (AI). The growth of generative AI, which can craft content based on prompts, is only beginning to permeate our daily lives. Applications of AI are becoming common, exemplified by tools like ChatGPT for inquiries, Alphabet's Veo 2 for video creation from text, and Microsoft’s 365 Copilot to enhance productivity.

The Invesco QQQ is a solid avenue for investing in a wide array of leading companies that are capitalizing on these trends. Its substantial holdings include giants like Apple (9.4% of the portfolio), Nvidia (8.8%), Microsoft (8.1%), Amazon (6%), Alphabet (5.7%), Broadcom (4.5%), Tesla (3.7%), and Meta Platforms (3.4%). The largest non-tech holding in the ETF is Costco at 2.6%.

This focus on large-cap technology stocks has resulted in significant returns over the years. In the last decade, the QQQ ETF has posted an impressive cumulative return of 435.9%, greatly surpassing the S&P 500’s 242.5% return during the same timeframe. This performance corresponds to an average annual return of 18.3% for the ETF during this period. The last five years have seen even higher returns, averaging 19.9% annually compared to the S&P 500’s 14.5%.

It’s essential to note that this strong performance is not solely due to a few standout years. Data from Invesco indicates that the QQQ ETF has outperformed the S&P 500 about 87% of the time over the past decade when evaluated using rolling monthly periods.

Can the Invesco QQQ ETF Create Millionaires?

Despite its impressive track record over the last ten years, the QQQ ETF alone is unlikely to turn a small investment into $1 million in just a decade. For instance, a $10,000 investment made a decade ago would now be valued at around $53,591 (as of the end of 2024).

The real strategy for utilizing the QQQ ETF to build substantial wealth lies in consistent investing through a method known as dollar-cost averaging. This strategy involves regularly investing in the ETF, regardless of its price. This approach allows investors to benefit from market increases while also taking advantage of lower prices when the market dips. Historically, this strategy has proven effective for long-term wealth accumulation.

If an investor were to start with a $10,000 initial investment and add $1,000 every month for the next 20 years, assuming a 12% average annual return, the total investment could potentially grow to around $1 million. Approximately 75% of this amount would be attributable to market gains. However, actual returns will be subject to fluctuations over time, yet it gives a useful perspective on the timeframe required for wealth accumulation.

In summary, the Invesco QQQ ETF has a long history of outperforming the market, positioning it as a strong investment choice for those willing to engage in a more aggressive strategy, mainly due to its high allocation toward tech-based companies. As the ETF has recently seen a pullback from its highs, it may present a favorable opportunity for long-term investors to start building their portfolios.

investment, technology, wealth