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VOO vs QQQ: ETF Comparison Guide

VOO vs QQQ: ETF Comparison Guide
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Investing has gotten infinitely easier over the past few decades with the emergence of broad market index funds and exchange-traded funds (ETFs). Rather than buying shares in individual company stocks, these funds allow one to invest in a broad stock market range and have an instantly diversified portfolio. So whether you’re an experienced investor or just beginning, ETFs and other broad market funds are an excellent vehicle for generating long-term wealth via buy-and-hold investing.

While investing in a broad market fund is a wise choice, choosing which ETF is best for you can be challenging. Not all ETFs are the same. Two of the most popular ETFs are the Invesco QQQ Trust (QQQ) and the Vanguard S&P 500 ETF (VOO). The following will compare VOO vs QQQ so you can decide which of these popular investing options may be best for you.

VOO: Overview

Description

The Vanguard S&P 500 ETF contains stocks from 507 of the best companies in the U.S. and tracks the S&P 500 index. According to Market Cap, the S&P 500 index (Standard and Poor’s 500) is a stock market index containing the 500 largest companies in the U.S. It is generally considered the best indicator of the performance of stocks overall. The fund is market-cap-weighted so that the largest stocks make up a more significant portion of the portfolio holdings. The Vanguard S&P 500 ETF total net assets are currently at $856.1 billion (as of 12/31/21), and the fund has an expense ratio of 0.03% and no minimum initial investment.

Performance and Returns

The S&P 500 index has historically earned positive returns of an average of 10% a year despite the potential for short-term volatility. Because the Vanguard S&P 500 ETF aims to match the performance of the S&P 500 index, it has been relatively stable over time but cannot beat the S&P’s performance.Since its inception in 2010, VOO has seen average annual returns of 16.17%, and the 1-year, 5-year, and 10-year average annual returns are as follows:

  • 1-year returns at 28.66%
  • 5-year returns at 18.43%
  • 10-year returns at 16.51%

Holdings

The Vanguard S&P 500 ETF holdings include a total of 507 of the top companies in the stock market. The top 10 holdings, which make up 30.4% of the fund’s net assets, include tech sector giants Apple, Microsoft Corp., and Tesla. Aside from tech stocks, the top 10 holdings also include Amazon, Berkshire Hathaway, and JPMorgan Chase & Co. With this smattering of the top companies in the tech sector and others, those that hold shares in this Vanguard fund are owners of most of the leading companies out there today.

Dividends

Dividends and capital gains for VOO are distributed quarterly. The dividends distribution for 2021 are as follows:

  • Quarter 1 – $1.2625 per share
  • Quarter 2 – $1.3329 per share
  • Quarter 3 – $1.3040 per share
  • Quarter 4 – $1.5329 per share

Pros

There are a lot of reasons to like the Vanguard S&P 500 ETF. As a fund that tracks the S&P 500, you know you’re buying shares in the best companies in the U.S. Because the fund tracks an index as opposed to specific companies, you’ll always have shares in the top companies regardless of any movement within the index. Investing in VOO also guarantees a diversified portfolio and exposure to value stocks from a wide range of industries.

Buying a share of VOO is like instantly buying a small piece of the 500 most profitable companies in the country in one transaction. Due to their popularity, competition between various S&P 500 funds has also driven the expense ratio for funds like VOO down to nearly zero. With no minimum investment required, VOO is a low-cost way to gain exposure to the best companies in the United States, especially for beginning or passive investors.

Cons

One of the potential downsides to VOO is that it only earns average returns since it aims to track the S&P 500. However, while VOO has historically earned average returns, fund options could potentially earn higher than average returns. Another drawback to VOO is that it is market-cap-weighted, which means that the fund’s success will be driven primarily by the top 10 holdings that make up 30% of net assets.

Read our related article: VT vs VTI

QQQ: Overview

Description

The Invesco QQQ Trust contains tech stocks from the 100 companies in the Nasdaq-100 index, which the fund aims to track. The Nasdaq-100 includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq exchange and is one of the preeminent indexes for large-cap growth stocks. Unlike a broad market index, QQQ solely focuses on the technology sector. The Invesco QQQ ETF includes total net assets are currently at $215.24 billion, and the fund has an expense ratio of 0.2% with no minimum initial investment.

Performance and Returns

The Nasdaq-100 Index has historically had higher than average returns. Since the Invesco QQQ ETF aims to closely track the performance of the Nasdaq-100 index and the largest and strongest companies in the technology industry, the fund has similarly seen tremendous growth over the past decade.Since its inception in 1999, QQQ has seen average annual returns of 10.10%, and the 1-year, 5-year, and 10-year annual returns are as follows:

  • 1-year returns at 27.42%
  • 5-year returns at 28.38%
  • 10-year returns at 22.90%

Holdings

The holdings of the Invesco QQQ ETF include 100 of the top tech companies in the stock market. The top 10 QQQ holdings, which make up around 50% of the fund allocation, include behemoth tech companies Apple, Microsoft, and Alphabet (Google’s parent company). Although shareholders of QQQ invest primarily in one sector, the explosion and dominance of technology indicate that the future performance of this fund will be bright.

Dividends

Dividends for QQQ are distributed quarterly. The dividends distribution for 2021 were as follows:

  • Quarter 1 – $0.395  per share
  • Quarter 2 – $0.397 per share
  • Quarter 3 – $0.414 per share
  • Quarter 4 – $0.491 per share

Pros

There are many reasons why QQQ could be a smart investment. Although this fund has seen average returns since inception, its historical performance has been much higher than average over the past decade. Past performance shows that QQQ does better than VOO over longer periods of time.

With the continued boom of technology, this fund could potentially beat the overall stock market in the future as well. Like the S&P 500 ETF, QQQ tracks an index, so you know you’re buying shares in the best tech companies regardless of any movement within the index. Furthermore, QQQ also has a low expense ratio and no minimum investment requirement. So if you’re an investor looking for higher than average returns and to invest primarily in the tech industry, then QQQ is a potentially great fund.

Cons

Although the potential for higher returns is great, Invesco QQQ focuses solely on one industry, making it less diverse and riskier. If the tech industry as a whole experience a significant downturn, it could have a substantial impact on your portfolio. For this reason, those investing in QQQ should ensure that the rest of their portfolio is well-diversified. Another potential downside of QQQ is its much higher expense ratio than other funds.

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Pros:
  • Mix Funds - Stocks and ETFs
  • Low Minimum Investments
  • Partial Shares
Cons:
  • No Tax Loss Harvesting
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QQQ vs. VOO: A Side-by-Side Comparison

The following table presents a side-by-side comparison of QQQ and VOO.

 S&P 500 ETF (VOO)Invesco QQQ ETF
IssuerVanguardInvesco
Expense Ratio0.03%0.20%
Minimum Initial InvestmentNoneNone
Net Assets$856.1 billion$215.24 billion
Average Daily Volume (Last 30 Days)7.221 million62.79 million
IndexS&P 500 IndexNasdaq-100 Index
Number of Holdings507100
IndustryTop U.S. OverallTechnology
Top 3 HoldingsApple, Microsoft, Alphabet (Google)Apple, Microsoft, Amazon
1-Year Returns28.66%27.42%
10-Year Returns16.51%22.90%
ESG Score7.727.58

Read our related article on VTSAX vs VTI

Which Is Right for Me— VOO vs QQQ?

Which is the best ETF: VOO or QQQ? While these ETFs are similar in many ways, and both QQQ and VOO are fantastic investments, some significant differences will impact which fund might be right for you. Both of these funds track indexes, but Vanguards S&P 500 ETF comprises the 507 largest companies in the U.S. regardless of industry. While the Invesco QQQ focuses solely on the tech industry and has come greater returns. Another major difference between QQQ and VOO is the expense ratio. Vanguard has low expense ratios, and VOO follows that pattern with an expense ratio at just 0.03%.

On the other hand, at 0.20%, QQQs expense ratio is over six times more expensive, which could significantly affect your returns over the long haul. However, which ETF is best for you will largely depend on which industry and index you’d like to invest in. For example, if you’re into tech stocks, after better returns, and are not afraid of a little risk, then QQQ is best. However, if you’re looking for a relatively safe and stable fund where you’ll earn average returns for very little expense, then VOO is best. Now that you know about these index options, which popular ETF will you choose: QQQ or VOO?