The Best Index ETF to Invest $1,000 in Right Now

Investing in the stock market remains one of the most effective means to build wealth over the long term. Selecting individual stocks can be a challenging endeavor. Surprisingly, only about 15% of professional fund managers have managed to outperform the S&P 500 index in the past decade. Despite having access to extensive resources and in-depth analysis, many still struggle to beat the market.

Interestingly, a JPMorgan study that evaluated stocks from 1980 to 2020 revealed that 40% of those within the Russell 3000—comprising the 3,000 largest publicly traded stocks in the U.S.—suffered losses of 70% or more and never recovered. Moreover, 66% of stocks failed to surpass the performance of the Russell 3000.

This begs the question: what should individual investors do?

For many, investing through index exchange-traded funds (ETFs) that mimic market indexes can be a smart approach. While ETFs tracking the popular S&P 500 are an excellent starting point, one ETF has consistently outperformed the S&P 500, and that is the Invesco Nasdaq 100 ETF (QQQ).

Technology Leads the Way

The Invesco Nasdaq 100 ETF follows the Nasdaq-100 Index, which includes the 100 largest non-financial companies on the Nasdaq stock exchange. This index is known for hosting growth-focused companies, particularly in the technology sector.

Technology is continuously reshaping our world, and the advent of artificial intelligence (AI) presents a remarkable opportunity. As Amazon has highlighted, AI may represent a defining business shift since the internet. Today, many of the largest companies are either tech firms or heavily influenced by technology.

By investing in the Invesco Nasdaq 100 ETF, investors gain exposure to a range of tech companies at the forefront of the AI movement. At the end of 2024, approximately 60% of this ETF's assets were allocated to technology companies, with an additional 20% invested in consumer discretionary sectors. Notably, giants like Tesla and Amazon are categorized as consumer discretionary due to their significant tech involvement.

The ETF's leading 10 holdings are primarily comprised of prominent tech and tech-related firms. Together, these top 10 companies account for over 50% of the ETF's total portfolio. Here’s a breakdown of the Invesco Nasdaq 100 ETF's top 10 holdings and their respective weightings as of late 2024:

Holding	Weighting		Holding	Weighting
Apple	8.8%		Broadcom	4.5%
Nvidia	7.9%		Meta Platforms	3.9%
Microsoft	7.7%		Tesla	3.4%
Amazon	6.3%		Costco Wholesale	2.9%
Alphabet	5.5%		Netflix	2.7%

As the data shows, the Invesco Nasdaq 100 ETF has a strong performance track record. Since its launch in 1999, it has outperformed the S&P 500 by an impressive 443.4%, achieving a remarkable total return of 1,089% as of late 2024.

Over the last decade, the ETF has generated a return of 459% by the end of January, significantly surpassing the S&P 500's return of 263%. This translates to an average annual return of 18.8%. In the past five years alone, the ETF yielded a return of 146.2%, or an annualized return of 19.8%, while the S&P 500 achieved a return of 102.6%, which is equivalent to a 15.2% annual average.

Additionally, the ETF has noted that it has outperformed the S&P 500 on a rolling-12-month basis 87% of the time over the past decade and 84% over the last five years.

Dollar-Cost Averaging

While the Invesco Nasdaq 100 ETF represents a promising investment option today, consistent investing over time is key for wealth accumulation. One effective strategy is called dollar-cost averaging. This approach involves investing a set amount at regular intervals, irrespective of the ETF's performance, whether it's thriving or facing challenges.

The stock market experiences fluctuations, so maintaining a consistent investing strategy during all market conditions is essential. Although experiencing bear markets can be tough, they often present excellent buying opportunities for long-term investors. If you hold off until a bear market arrives before investing, you risk missing out on potential gains, as bull markets can persist for extended periods.

Historically, since 1950, the S&P 500 has reached all-time highs on around 7% of its trading days, with approximately one-third of those peaks turning into market floors from which the market does not retreat lower.

Suzanne Frey, an executive at Alphabet, serves on The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is likewise on the board. Randi Zuckerberg, former director of market development at Facebook and sister to Meta Platforms CEO Mark Zuckerberg, also holds a board position. Additionally, JPMorgan Chase collaborates with Motley Fool Money as an advertising partner. Geoffrey Seiler has stakes in Alphabet and Invesco QQQ Trust. The Motley Fool has investments in and advocates for Alphabet, Amazon, Apple, Costco Wholesale, JPMorgan Chase, Meta Platforms, Microsoft, Netflix, Nvidia, and Tesla, among others. They also recommend Broadcom and certain options related to Microsoft. The Motley Fool maintains a disclosure policy.

investing, stocks, ETFs