VGT Vs QQQ: VGT and QQQ are two popular exchange-traded funds (ETF). Both ETFs focus on stocks from technology companies based in the United States. Differences between VGT and QQQ, however, could mean that one option makes more sense for your investment strategies.
The following article takes a closer look at the stocks comprising each, track records, and other features that could influence your decision.
Why Invest in Technology ETFs?
Technology companies play an increasingly important role in the economy. Emerging tech companies, however, also come with a lot of risks. When you invest in baskets of stocks like VGT and QQQ, you gain exposure to established firms and emerging up-and-comers.
Technology ETFs help you to minimize risk while taking advantage of growth in the technology sector. The VGT portfolio, for example, helps offset risk by investing in companies like Apple, Microsoft, and Adobe. Over the long haul, they’ve all proven to deliver enormous value to shareholders.
Many financial advisors will tell you that investing in one segment of the economy adds risk to your portfolio. They’re correct. An event like the Dot-Com Bubble in the late ‘90s and early ‘00s could decimate the tech sector, which would harm your portfolio significantly.
A technology ETF lowers your risk by spreading your investment among dozens of companies. It’s a way to reduce your risk more by investing in several areas of the economy.
In fact, you probably should diversify your holdings more, especially as you near retirement. People who still have more than a decade before they retire can generally accept more risk. If they lose money today, they have plenty of time to wait for the market to recover. As the market recovers, their portfolios will likely regain value.
Technology ETFs, in other words, aren’t the right investment opportunity for everyone. If you can accept some additional risk, though, you could find that devoting money to an ETF helps you grow wealth quickly.
Well-managed ETFs like VGT and QQQ let you take advantage of technology’s growth while giving you some protection from the risk of focusing on one segment of the economy.
Common reason investors choose technology ETFs include:
- Tax advantages that let you accumulate wealth more quickly.
- Lower minimum purchases compared to most index mutual funds.
- Low expense ratios that keep money in investments instead of spending it on account managers.
- Risk reduction from investing in several emerging and established tech companies.
What Is VGT?
VGT stands for “Vanguard Information Technology.” VGT is an ETF managed by Vanguard, a company that offers a wide range of investment options, including IRAs, CDs, bonds, and mutual funds.
At last count, VGT included stocks from 334 companies. The top 10 companies in the technology ETF accounts for nearly 60% of its holdings. Those companies include:
- Apple Inc
- Microsoft Corp
- Visa Inc
- Mastercard Inc
- Intel Corp
- NVIDIA Corp
- Adobe Inc
- PayPal Holdings Inc
- Salesforce.com Inc
The market value of VGT’s shares in Apple and Microsoft come to about $6 billion. The total assets come to about $34 billion.
Investing in QQQ
QQQ is an ETF run by Invesco, which also has investment options like IRAs, mutual funds, and closed-end funds.
Invesco QQQ typically includes stock in all companies in the Nasdaq-100 Index. Returns on QQQ investments historically align with returns on Nasdaq-100 Index investments. QQQ has outcompeted the S&P 500 Index every year since its formation in 1999.
Nearly all of the shares in QQQ come from companies based in the U.S. About 2.5% of QQQ’s allocation, however, goes to companies based in China, Netherlands, Argentina, Israel, and the United Kingdom.
The ETF invests heavily in information technology. More than 47% of QQQ’s allocation goes to information technology companies. Other important sectors include communication, consumer technology, and health care.
QQQ’s top ETF holdings include:
Invesco says that it was the second-most traded ETF in the U.S. during the first quarter of 2020. QQQ has about $100.5 billion in net assets.
VGT Vs QQQ: Which is a Better Investment
There isn’t an easy answer for whether you should choose VGT or QQQ. Both investment options show excellent growth over the last decade. The one that you pick will likely depend on your short-term and long-term investment goals.
If you want an ETF with higher dividend yields, then you should choose VGT, which has a 1.22% dividend yield. QQQ is nearly half of that with a 0.74% dividend yield.
The higher dividend yield from VGT means that you will likely get paid more income at the end of the year. You can also put your money back into the investment, which will encourage long-term growth. A difference of 0.48% might not sound like much, but it can make a big difference when compounded over several years or decades.
If you only pay attention to returns, then QQQ is potentially a better option than VGT. The 10-year return from QQQ is 18.09% compared to VGT’s 17.63%.
Returns aren’t always better from QQQ, though. On average, QQQ has had a higher return over the last 10 years. More recently, though, VGT has performed better. VGT’s three-year return is 21.43%, while QQQ’s only comes to 18.11%.
No one knows how the technology sector will move over the next several years. If the recent trend continues, then VGT will move ahead of QQQ. Historically, though, that has not been the case. Either way, you can expect growth that’s close to or better than most index funds.
QQQ Vs VGT: The Bottom Line
The bottom line is that QQQ and VGT are great investment opportunities for people who can accept a little risk. If you’re young, then it makes sense to devote some of your money to technology ETFs with histories of success.
As you get closer to retirement, technology ETFs become riskier for your financial future. Considering that QQQ and VGT have above-average returns, though, they seem safer than most of your options.
Before investing in QQQ or VGT ETFs, look closely at the recent performance of both index funds. At the moment, it looks like VGT may do slightly better than QQQ. That could easily change at any time, though, especially as the economy tries to recover from the devastation of COVID-19. Whether tech stocks become more or less valuable will depend on how well companies adapt to the changing situation.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.