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

When considering where to invest your money, a booming exchange-traded fund (ETF) with impressive historical performance is hard to overlook.

Over the past decade, the S&P 500 has achieved a remarkable total return of 253%. This is a significant gain for a passive investment that offers exposure to a diverse array of companies across various sectors.

However, some investors might seek targeted exposure to specific segments of the economy, particularly technology companies. If that resonates with you, then investing $1,000 in the Invesco QQQ Trust (QQQ 0.74%) could be a wise choice. Here’s why.

Investing in Leading Tech Firms

The Invesco QQQ Trust is an ETF designed to track the performance of the 100 largest non-financial stocks listed on the Nasdaq exchange. This differs from the S&P 500, which reflects the overall performance of the 500 biggest companies based in the U.S.

It’s crucial for investors to recognize the makeup of the Invesco QQQ Trust. The fund allocates a massive portion of its assets—51%—to the information technology sector. Additionally, the so-called "Magnificent Seven" tech giants alone account for 43% of the ETF.

This allocation has historically paid off. These tech giants tend to experience robust growth, thanks in part to favorable trends across several areas including artificial intelligence, digital payments, e-commerce, cloud computing, and electric vehicles. Currently, these seven companies hold some of the highest valuations globally.

Outstanding Performance Metrics

While the S&P 500 has performed well in recent times, the Invesco QQQ Trust has outpaced it significantly. Over the past decade, QQQ has generated a total return of 443%, which translates to an annual gain of 18.4%. For reference, an investment of $1,000 made in October 2014 would now be worth over $5,400.

This performance has been aided by a generally low-interest-rate environment for much of this period, which has benefitted the top stocks within the QQQ.

Some investors may perceive the QQQ ETF as being costly. However, it has an expense ratio of only 0.2%, meaning that for every $1,000 invested, only $2 is used to cover fees annually. This setup allows investors to retain more of their profits in the long run.

In recent years, the Ark Innovation ETF, led by Cathie Wood’s Ark Invest, has gained notable attention. Like QQQ, it targets innovative and disruptive firms. However, its performance has lagged significantly. In the past five years, the Ark Innovation ETF has achieved a total return of just 12.8%, compared to the impressive 164% return of the Invesco QQQ Trust. Moreover, the Ark Innovation ETF charges a higher expense ratio of 0.75%—almost four times that of QQQ.

Important Considerations

The Invesco QQQ Trust has had an excellent performance year-to-date, climbing 21.5% as of October 30. Given that it is close to its all-time high, some investors may hesitate, wondering if this is the right time to invest or if waiting for a significant market dip might be wiser.

While timing the market seems appealing—buying low and selling high—it is notoriously difficult to execute successfully over time. Attempting to do so can actually harm your investment portfolio.

A more prudent approach would be to consider investing that $1,000 in the Invesco QQQ Trust now, maintaining a long-term perspective. If you prefer to spread your investment, consider implementing a dollar-cost averaging strategy. This method involves investing smaller amounts at regular intervals, allowing you to take advantage of various price levels without the stress of trying to time the market perfectly.

ETF, Investing, Technology