QQQ vs. VOO: Which is the better ETF?
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Updated: March 25, 2024
ETFs offer diversity and some sense of stability since you don’t have to worry about tracking the stock market daily. Two of the most popular ETFs available are Invesco QQQ (QQQ) and Vanguard S&P 500 ETF (VOO). Both of these ETFs follow a different index, and they allow you to invest in some of the largest companies on the market.
Both QQQ and VOO are great investment options for folks with a long-term investing horizon, but which is best for you? Here are the differences and similarities between these two popular funds to help you make an informed decision for your portfolio.
What are QQQ and VOO?
QQQ and VOO are the ticker symbols for two popular ETFs. Exchange-traded funds, or ETFs, are investments that pool securities together and trade as if it was s stock on the exchange. Both of these funds track a specific market cap-weighted index and hold a variety of investments to give you exposure to some of the largest companies on the market. While VOO is a Vanguard index ETF, QQQ is an Invesco ETF that tracks the Nasdaq-100 Index.
Investors often trust QQQ and VOO with their funds because these investments give you exposure to the stock market without relying on trying to track individual stocks, which has proven to be extremely risky over the last few years. You can also purchase VOO as the Admiral Shares mutual fund (VFIAX).
Both of these ETFs have been around for a long time with long histories of steady growth for investors. The major difference when comparing QQQ and VOO is the types of companies that they invest in, as QQQ tends to be more tech-heavy, while VOO invests in a variety of different industries.
Introduction to QQQ
Invesco QQQ (QQQ) tracks the Nasdaq-100, which are the 100 largest non-financial companies. This means that QQQ is heavily investing in technology. This fund allows investors to put their money into the 100 biggest non-financial companies that trade on the Nasdaq. Following the Nasdaq-100, QQQ holds 101 stocks.
Top 10 QQQ holdings
- Apple Inc. (AAPL)
- Microsoft Corp. (MSFT)
- Amazon.com Inc. (AMZN)
- NVIDIA Corp. (NVDA)
- Meta Platforms Inc Class A (META)
- Broadcom Inc. (AVGO)
- Alphabet Inc Class A (GOOG)
- Alphabet Inc Class C (GOOGL)
- Tesla Inc. (TSLA)
- Adobe Inc. (ADBE)
Holdings as of Nov. 1, 2023
Sectors
This is how the different sectors are weighted within the QQQ fund.
- Information Technology: 57.1%
- Consumer Discretionary: 18.73%
- Heath Care: 7.21%
- Telecommunications: 5.48%
- Industrials: 4.87%
- Consumer Staples: 4.23%
- Utilities: 1.24%
- Energy: 0.69%
- Real Estate: 0.27%
- Not classified: 0.16%
Introduction to VOO
Vanguard S&P 500 ETF (VOO) is a basket of various securities that track the S&P 500 Index. The S&P 500 is a mix of 505 large-cap US companies. Historically speaking, large-cap companies are safer but don’t provide the same growth potential that you would find with smaller companies.
Top 10 VOO holdings
- Apple Inc. (AAPL)
- Microsoft Corp. (MSFT)
- Amazon Inc. (AMZN)
- NVIDIA Corp. (NVDA)
- Alphabet Inc. Class A (GOOGL)
- Tesla Inc. (TSLA)
- Meta Platforms Inc Class A (META)
- Alphabet Class C (GOOG)
- Berkshire Hathaway Inc. Class B (BRK.B)
- Exxon Mobil Corporation (XOM)
Holdings as of Sept. 30 2023
Sectors
This is how the different sectors are weighted within the VOO fund. It’s worth mentioning again that the weights given here are the same as the S&P 500.
- Information Technology: 27.50%
- Healthcare: 13.40%
- Financial Services: 12.70%
- Consumer Discretionary: 10.70%
- Communication Services: 8.90%
- Industrials: 8.30%
- Consumer Staples: 6.60%
- Energy: 4.70%
- Real Estate: 2.40%
- Materials: 2.40%
- Utilities: 2.40%
QQQ vs. VOO performance
Now that we’ve looked at what QQQ and VOO invest in, it’s time to see how the two ETFs have performed recently and over the last few years to understand what to expect. Both funds have been able to increase in value over the years up until the market volatility of 2022. As we’ve all observed, the stock market swings caused by soaring inflation, persistent rate hikes, and global conflicts have impacted every company.
When comparing the annual returns for both funds, in 2021, VOO returned 28.60% by market price, while QQQ returned 27.24%. Both funds gave investors similar performances as both provided exceptional returns. In 2020, QQQ had a record year with returns of 48.60%, while VOO had returns of 18.35% in the same year. That year is proof of the general sentiment that a fund like QQQ will perform better during a bull run since tech stocks can experience rapid growth when the economy’s booming.
In 2022, the situation was slightly different due to macroeconomic issues, and both funds dropped in value. VOO saw a dip of 18.15%, while QQQ dropped 33.07%. The QQQ drop was more significant in 2022 since the fund is heavily invested in tech. It’s worth repeating that it’s difficult to find any ETF that won’t be impacted by the market swings we’ve experienced.
In the past 10 years, VOO has returned investors an average of 12.94% after taxes and the sale of fund shares. QQQ has been around since 1999, but when looking at the numbers from the previous decade, the company has returned investors an average of 16.93% after taxes and the sale of fund shares.
QQQ vs. VOO dividends
Both of these funds pay dividends to investors on a quarterly basis. Many investors will often look for steady income from dividends since you can’t always assume that your stocks will provide you with steady growth. QQQ has a dividend yield of 0.72% while VOO offers a better dividend yield of 1.59%. The most recent dividend payment for QQQ on 09/23/2022 was for $0.51856/share.
QQQ vs. VOO key differences and similarities
There are a few similarities between the funds. Since VOO essentially tracks the S&P 500 while QQQ tracks the largest non-financial companies on the Nasdaq, there’s certainly an overlap between QQQ and VOO regarding stocks, as they share about 78 securities.
Since both are ETFs, you can purchase them with any brokerage you use with no minimum investment. However, the similarities between QQQ and VOO stop there, as these funds vary due to the nature of the index that each follows respectively. These are completely different investments.
The top 10 holdings of VOO make up about 26% of the portfolio, while the top 10 holdings for QQQ make up 55% of its portfolio. The consequence of this is that the performance of companies like Apple, Microsoft, and Amazon will hugely impact the performance of the QQQ fund.
Regarding the management expense ratio, QQQ charges 0.2%, while VOO has an expense ratio of 0.03%. Since expenses can add up, it’s essential to look out for funds that reduce the expense ratio, as this is a guaranteed way to increase returns. With QQQ being six times more expensive than VOO, this is something to think about.
The key difference when comparing QQQ vs. VOO is that a different company offers each fund. Vanguard offers the VO, and Invesco offers QQQ. From there, it’s important to note that the funds have a substantial difference in the number of holdings they have. VOO holds five times as many stocks as QQQ since the fund tracks the S&P 500.
The stocks in the QQQ fund have a potential for higher growth, but they also come with a higher valuation, which could be an issue in today’s market as many companies are proving to be sensitive to the rate hikes that are impacting consumer spending. There are more inherent risks involved with investing in QQQ since the fund has fewer holdings and it has an emphasis on technology. The QQQ ETF isn’t a broad market fund and is heavily invested in technology.
Since VOO follows the S&P 500, it’s unlikely to beat the market, so you can’t expect above-average returns when you invest in this fund. However, since the fund invests in the biggest companies, you have instant diversification that you wouldn’t find with QQQ.
You’re likely to experience some volatility with any security in 2023, but there’s slightly more risk involved with investing your money in QQQ right now.
Bottom line: VOO or QQQ?
- Vanguard offers the VOO ETF, while Invesco offers QQQ.
- VOO tracks the S&P 500, and QQQ tracks the Nasdaq-100.
- Investing in QQQ is riskier, but it comes with the potential for higher rewards since this fund invests heavily in tech-related stocks, which are prone to rapid growth during a bull run.
- VOO fund invests in the S&P 500, so it has five times as many holdings as QQQ, providing you with instant diversification.
How can you decide between these two investment options? As always, your investments depend on your risk tolerance and financial goals.
However, generally speaking, most investors who aren’t keen on observing the market closely would be better off investing in the Vanguard S&P 500 ETF since you can own the overall large-cap market, making it easier to stay committed through the ups and downs.
On the flip side, if you’re looking for quicker growth, you’re going to want to invest in the QQQ since it has historically proven to grow faster if you have the risk tolerance to handle the market volatility.
There’s no simple solution when deciding between VOO and QQQ as both funds are unique. VOO will offer consistent returns with diversification and lower costs. QQQ will offer you the opportunity to bring in higher returns, but these come with more risks and a higher cost. If you’re looking for the best return possible on your money, then you’re going to want to go with QQQ. If you want to be a passive investor and not have to stress as much about market fluctuations, then you should invest in VOO.
Chris has an MBA with a focus in advanced investments and has been writing about all things personal finance since 2015.
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