Comparing Long-Term Investments: Nasdaq-100 vs. S&P 500 Growth Stocks

For long-term investors, focusing on growth stocks can be a powerful strategy to maximize returns. Compared to dividend stocks, which tend to prioritize regular payments over aggressive growth, growth stocks have the potential for much higher gains.

However, one must consider that growth stocks can face significant volatility from year to year. Despite this, if you are investing with a time horizon of years to decades, targeting growth stocks might be advantageous, as they tend to outperform dividend-paying stocks over the long run.

Instead of trying to select individual growth stocks, consider investing in an exchange-traded fund (ETF) that provides broad exposure to various growth companies with a single investment. Notably, two popular options are the Invesco QQQ Trust, which mirrors the Nasdaq-100 index, and the Vanguard S&P 500 Growth Index Fund ETF, focusing on growth companies within the S&P 500.

Which of these ETFs is a better investment for your portfolio today? Let’s unpack the details.

Performance Over the Last Decade

Both the Invesco QQQ Trust and the Vanguard S&P 500 Growth Index Fund have delivered impressive, market-beating returns over the past ten years. However, the Invesco QQQ, concentrating on the Nasdaq-100, has proven to be a slightly superior investment during this period.

The two funds share many similarities, with major companies like Apple, Nvidia, and Microsoft occupying the top spots in both ETFs. In the Invesco fund, these companies make up approximately 26% of total holdings, whereas they account for around 35% in the Vanguard fund. It's also worth noting that the Invesco ETF focuses on the top non-financial stocks in the Nasdaq-100, while the Vanguard fund includes more than 230 stocks, offering greater diversification.

Market Concerns and Their Impact on Both Funds

The stock market has experienced strong growth in the last couple of years, raising concerns about possible limitations on future returns. Consequently, both ETFs may face vulnerabilities should the market decline.

Because of its broader mix of stocks, the Vanguard fund may withstand market downturns better than the Invesco ETF. However, given that the Invesco fund has lesser exposure to major stocks like Apple, Nvidia, and Microsoft, it may also be less impacted if those valuations come under pressure.

In the long term, both ETFs stand as promising choices regardless of short-term market fluctuations. Their significant overlap might lead you to choose based on how diversified you want your investments to be and the degree of tech exposure you are comfortable with.

Within the Vanguard fund, nearly 50% of its holdings are technology stocks, while around 60% of the Invesco ETF consists of tech holdings. Tech stocks can offer exceptional returns but also run the risk of considerable sell-offs, particularly when their valuations become excessive.

The Invesco ETF: A Strong Long-Term Bet

While the Invesco fund may lack the diversification of the Vanguard fund, this could turn out to be advantageous over time. A more focused approach on growth stocks might drive higher long-term returns, as excessive diversification can limit achieving top performance.

Though it's critical to avoid concentrating your investment in a small number of stocks—thereby increasing overall risk—the Invesco fund manages a reasonable balance. For example, its largest asset, Apple, constitutes only 9% of its total portfolio. If you can tolerate short-term fluctuations, the Invesco fund may serve as a better long-term investment option.

Investment decisions should be made based on thorough research and the consideration of individual financial goals.

investment, stocks, growth