Are you looking for fantastic technology Exchange Traded Funds (ETFs)? Look no further than VGT vs QQQ. Vanguard’s Information Technology ETF (VGT) and Invesco’s QQQ ETF are the two best ETFs for technology, giving investors an excellent opportunity to slice the tech portion of the stock market.
If you look closely, VGT and QQQ are slightly different in allocating their stocks. Even though both are considered tech stocks, VGT is more of a tech ETF than QQQ. It may sound strange because everyone talks about QQQ being the best tech ETF.
Though QQQ has outperformed VGT slightly over the last 17 to 18 years, it is made up of only 45% of technology companies. VGT, on the other hand, is made up of 89% of technology, making it more of a pure tech ETF than QQQ. Still, it incorporates other various sectors tracked on the Nasdaq 100 index. It makes it interesting which one you would like to choose.
The challenge is which ETF you would choose? Would it be VGT or QQQ? Let’s break down VGT vs QQQ.
What is an ETF?
An ETF is an exchange-traded fund. It is like a mutual fund, but it is traded like a stock. Mutual funds are traded at the end of the day, and an ETF will be traded during the day as if it was a stock.
The great thing about ETFs is that many only cost what the price at the time you buy them. For many mutual funds, you must purchase shares, and if the market goes down during the day and then eventually ends on a high note, you may not have gotten the best price.
ETFs are great because you can also trade them relatively quickly and get fractional shares on many different platforms. One great platform is M1 Finance, where you can create your portfolio of stocks, bonds, and ETFs.
Vanguard Information Technology ETF (VGT) Overview:
VGT is a Tech ETF that tracks the MSCI USA IMI Information Technology 25/50 index. It is one of the most diverse market cap-weighted tech ETFs that gives you plain vanilla exposure to the tech industry. It has a low cost of 0.10% expense ratio, making it a great cheap option for having a tech ETF.
Since its inception, it has stayed close to the index, giving an outstanding performance. In the last ten years, it has averaged 19.23%, and it continues to outperform the S&P 500.
VGT holds 351 different stocks, and 60% of those are found in the top 10% of holdings. The problem with VGT is that it has too much exposure to two top tech companies, Apple (AAPL) and Microsoft (MSF). With Apple and Microsoft making up around 40% of the composition of VGT, the thought of volatility could occur if one of these two companies were to plummet in performance.
VGT does have significant exposure to small and micro-cap technology companies, but with the overall composition very concentrated in 10 companies, it makes the ETF a little less diverse.
Invesco QQQ ETF (QQQ) Overview
Invesco QQQ ETF is one of the most traded and popular ETFs. It is second to liquidity and popularity to SPY, an S&P 500 ETF. QQQ is one of the most excellent tech ETFs because it is popular and tracks the Nasdaq 100. It follows the top 100 market cap-weighted non-financial companies.
QQQ has been rated the number one best performing large-cap growth fund on the market based on the returns of the last 15 years. It has had a performance of 18.03% over the previous ten years. If you had put in $10,000 into QQQ ten years ago, it would have grown too close to $60,000.
With these returns comes an expense ratio of 0.20%. If you would like the same returns with a cheaper expense ratio, you can go with Invesco QQQM, which is the same as QQQ, but with a 0.15% expense ratio.
The Differences Between VGT vs QQQ
Several differences distinguish VGT from QQQ. They are not identical, and both have different philosophies on investing. VGT tracks the MSCI USA IMI Information Technology 25/50 Index, while QQQ tracks the Nasdaq 100. If they followed the same index, they would have similar performance and make-up overall.
Performance of VGT and QQQ
The performance comes down to a couple of factors. First of all, VGT is predominantly made up of Apple and Microsoft. They control close to 40% of the overall diversification of VGT. If these two companies are doing well, VGT can outperform QQQ. QQQ is based mainly on growth stocks. QQQ can see a dip in its performance if the overall market is down.
As of writing, this QQQ has a performance of 17.86% annual return over the last ten years. VGT has had a performance of 19.07% over the previous ten years. As you can see, VGT wins in this regard, but QQQ has many companies that are not in VGT, such as Amazon, Google, Tesla, and Meta. If you want a piece of these, it would be best to go with QQQ.
Performance cannot be just looked at the last ten years; you must see how they have done since its inception to get a better idea of how they will do in the future since they have both been around for at least 15 years. VGT had an annual return of 14.62% over 15 years, and QQQ had a yearly return of 14.61% over the same period. They are both quite similar.
For beginners, M1 Finance offers a great platform to start investing and grow your money.
Expense Ratio of VGT vs QQQ
If we want to get the most bang for our money will need to check out how much it costs to invest with VGT or QQQ. VGT has an expense ratio of 0.10%, which is $10 for every $10,000 invested.
QQQ has an expense ratio of 0.20%, meaning it costs $20 for every $10,000 invested. If you want the same fund as QQQ but cheaper, you can go with QQQM. QQQM and QQQ are identical, but QQQM has an expense ratio of 0.15%.
In terms of expense ratios, VGT wins this one. They are a little bit cheaper, which should give them a better performance. Low costs index funds do save us money.
Liquidity of VGT vs QQQ
If you are looking at the liquidity of either fund, then this could be a category that interests you. Many people are selling and trading options on these stocks, but the second most popular stock to trade is QQQ. SPY is the number one traded fund, but coming into number 2 would be QQQ. If you are into trading options, then grab shares of QQQ.
I thoroughly go into trading options, an advanced investing method, but many traders are into it. If you want to trade different options, then QQQ is highly traded.
That doesn’t mean anything wrong with VGT; it is another parameter to consider when investing in these two ETFs.
Why Choose Either VGT or QQQ?
VGT and QQQ are the two best technology ETFs out there. Many people mention these two tech ETFs as a favorite. Why would anyone choose one of these? That is a question for the investor. Many people will create a portfolio of solid low costs index funds like VTSAX or VFIAX that track the whole market or the S&P 500.
If you want to add a bit more risk into your portfolio, then add a tech ETF to give some more allocation. Either VGT vs QQQ would be an excellent way to add more to the percentage of technology and growth companies.
Realize that as market crashes happen, the tech industry has a bit more volatility, and therefore, you will need to be able to stomach some of the lows and hang on as they come back to rise from the ashes.
Which Is The Best Tech ETF?
That is a tricky question. If you want more growth tech companies like Amazon, Google, Tesla, and Meta, then go with QQQ. If you would like more tech-focused with a higher allocation for Apple and Microsoft, go with VGT.
Those that are into trading can go with QQQ just because of the liquidity factor. Either one of these ETFs will be great for someone’s portfolio.
When people look at creating a compelling portfolio, they tend to find a good financial advisor to create something that makes growth. If you are into building your portfolio, you have the tools at your fingertips to create a great passively managed portfolio using these index fund tech ETFs.
Both VGT and QQQ are great to invest in. Their dividends are pretty low, but they would be a great asset in your taxable brokerage account with the prospect of growth. Past performance shows excellent growth opportunities, but realize that these funds can be volatile.
If you are looking for a pure technology ETF, VGT would be the best place. If you are looking for growth with many big-name companies, go with QQQ. They are both excellent in adding to your investment strategy.
Which tech ETF would you choose? VGT vs QQQ
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I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.