Picking individual stocks to add to your portfolio can sometimes be overwhelming, especially when there are thousands to pick from in the market. Even when you've settled on a specific sector or industry, picking stocks within those can be tedious.
Thankfully, you don't have to spend time researching and picking individual stocks; you could invest in an exchange-traded fund (ETF) that provides broad exposure to the sector or industry you're interested in. The tech sector has often been the most popular part of the stock market -- and the most rewarding -- for investors over the past couple of decades.
If you have $500 available to invest (meaning you have an emergency fund saved and high-interest debt paid down) and want exposure to some of the world's top tech companies, the Invesco QQQ Trust ETF (QQQ -0.12%) is a great option.
A tech ETF in its own right
The Invesco QQQ Trust ETF mirrors the Nasdaq-100, an index that tracks the 100 largest non-financial companies listed on the Nasdaq stock exchange. Although it's not a pure tech ETF, the tech sector makes up around 59% of the fund and contains many of the world's most important tech companies.
Here are the ETF's top 10 holdings, which include the "Magnificent Seven" (as of March 31).
- Microsoft: 8.75%
- Apple: 7.41%
- Nvidia: 6.32%
- Amazon: 5.25%
- Meta Platforms: 4.76%
- Broadcom: 4.44%
- Alphabet (Class A): 2.49%
- Alphabet (Class C): 2.42%
- Tesla: 2.37%
- Costco Wholesale: 2.35%
The ETF is in a nice sweet spot -- not quite as broad as the Nasdaq Composite Index (which contains over 3,000 companies), but broad enough to cover virtually all areas of the tech industry. Its tech companies are involved in software, semiconductors, cloud computing, artificial intelligence, and dozens of other industries poised to drive growth.
An inexpensive way to get exposure to top tech companies
The ETF's expense ratio is 0.20%, which works out to $1 annually per $500 invested. It's not as cheap as some popular S&P 500 ETFs, which could have expense ratios as low as 0.03%, but it's still a lower-cost option than many other comparable ETFs.
An ETF's expense ratio may seem like a small detail that can be ignored, but the smallest differences on paper can equal a decent amount of money in real life.
For example, imagine you invest $500 monthly into two ETFs that average 10% annual returns over 20 years. Below is how your investment totals would differ between 0.20% and 0.40% expense ratios:
| Expense Ratio | Amount Paid in Fees | Ending Investment Total |
|---|---|---|
| 0.20% | $7,700 | $335,900 |
| 0.40% | $15,200 | $328,400 |
Calculations by author. Figures rounded to the nearest hundred.
Even a slight 0.20% difference equaled thousands more paid in fees over time. Don't overlook ETF expense ratios; they matter.
The ETF has a history of market-beating results
The ETF is up close to 1,000% since its March 1999 inception, with many of those gains coming in the last decade. In that span, it has considerably outperformed the Nasdaq Composite and S&P 500. A $500 investment at its inception would be worth close to $5,500 today.
QQQ Total Return Level data by YCharts
An ETF returning close to 19% in a single year is impressive in itself, but averaging that over a decade is a testament to the consistency and resilience of the companies leading the way.
Past results don't guarantee future performance, but for the sake of illustration, let's assume the ETF averages more modest 15% annual returns over the next decade. A $500 investment now could be worth close to $2,000 after fees.
You should never invest in a stock assuming you can predict its performance, because you can't. That's like counting your chickens before they hatch and one of the easiest ways to set yourself up for disappointment. However, history can give you insight into a stock's ability, and this ETF has shown it can deliver consistent returns and capitalize on the tech sector's growth.
