Exchange-traded funds (ETFs) give investors an easy and low-cost way to spread their bets among hundreds and even thousands of companies, eliminating the need to try to find individual winning stocks. This broad-based diversification can help you reduce your risk while still allowing you to profit from powerful trends, such as the artificial intelligence (AI) boom.
Here are two ETFs that are particularly well constructed to deliver fortune-building gains to their shareholders in the years and decades ahead.
Here's how to profit from the growth of big tech and AI
The Invesco QQQ ETF (QQQ -0.52%) is designed to track the Nasdaq-100 index, which is comprised of the 100 biggest non-financial companies in the Nasdaq Composite. It's chock-full of tech titans, including the popular "Magnificent Seven" stocks, which are all among the fund's top holdings.
| Company | Share of Invesco QQQ ETF Funds Allocation |
|---|---|
| Microsoft | 8.5% |
| Apple | 8.1% |
| Nvidia | 7.6% |
| Alphabet | 5.5% |
| Amazon.com | 5.1% |
| Meta Platforms | 4.5% |
| Tesla | 2.4% |
Data source: Invesco.
These are some of the most powerful and profitable businesses on the planet. Their sizable representation within this Invesco ETF can provide your portfolio with a lucrative combination of proven performance and attractive long-term growth potential.
The ETF is also loaded with AI stocks outside of the Magnificent Seven that could have even better growth prospects. Chipmakers like Broadcom and Advanced Micro Devices and AI-powered cybersecurity leaders like Palo Alto Networks and CrowdStrike count among the fund's holdings.
Importantly, the fund has a reasonable expense ratio of 0.2%, which equates to a fee of just $2 per $1,000 invested annually. By keeping its fees low, the Invesco QQQ ETF offers you a simple and cost-effective way to profit from the growth of 100 of the largest and best companies within the tech- and AI-heavy Nasdaq Composite index.
This small-cap fund could turbocharge your returns
While size and strength are certainly advantages for many of the companies within the Nasdaq-100, there are other benefits to be had by owning stakes in smaller, faster-growing businesses. That's where the Vanguard Russell 2000 ETF (VTWO 0.38%) comes in.
The Vanguard Russell 2000 ETF can provide you with exposure to a broad array of small- and mid-cap stocks. It holds nearly 2,000 equities, with a median market capitalization of $3 billion. That contrasts starkly with the Invesco QQQ ETF, which has a weighted market cap of over $980 billion due to the outsize impact of the mega-cap companies it holds. These two ETFs thus pair nicely. Together, they can provide your portfolio with a wealth-building blend of larger stalwarts and smaller, high-potential upstarts.
Interestingly, the stocks held by the Vanguard Russell 2000 ETF currently trade at a steep discount to their larger rivals. The fund's weighted price-to-earnings (P/E) ratio of 15 is about 57% lower than the Invesco QQQ ETF's P/E of 35. This discount is one of the reasons why Fundstrat analyst Tom Lee thinks the Russell 2000 -- the index the Vanguard Russell 2000 ETF tracks -- could soar by 45% in 2024.
Interest rate cuts could also spark a rally in the Vanguard Russell 2000 ETF. With inflation moderating, the Federal Reserve is expected to begin reducing interest rates later this year. Small businesses tend to benefit more than larger companies when rates fall because they're able to obtain the growth financing they need on more attractive terms.
Better still, the Vanguard Russell 2000 ETF's annual expense ratio of only 0.1% will enable you to keep more of these potential gains for yourself, rather than paying them out as management fees.
