The Best Index ETF for a $1,000 Investment Right Now

Investing in the stock market is one of the most effective ways to build wealth over time. However, choosing individual stocks can be quite challenging. In fact, research shows that only around 15% of professional fund managers have managed to outperform the S&P 500 index over the past ten years. Even those with extensive resources and analytical tools often struggle to beat the market.

A JPMorgan study that analyzed stocks from 1980 to 2020 found that about 40% of companies in the Russell 3000, which includes the 3,000 largest stocks traded in the United States, experienced losses of 70% or more and never bounced back. Additionally, 66% of stocks did worse than the Russell 3000 itself.

So, what should individual investors do?

One of the best solutions for everyday investors is to put money into index exchange-traded funds (ETFs) that track market indexes. ETFs that follow the popular S&P 500 are a solid starting point. However, there is one ETF that has consistently outperformed the S&P 500, the Invesco Nasdaq 100 ETF (QQQ).

Technology Drives Growth

The Invesco Nasdaq 100 ETF aims to mirror the Nasdaq-100 Index, which is made up of the 100 largest non-financial companies listed on the Nasdaq stock exchange. The Nasdaq is known for hosting many growth-oriented companies, highlighting a significant focus on the technology sector.

Technology continues to reshape our world, and advancements in artificial intelligence (AI) could represent a once-in-a-generation opportunity. In fact, Amazon recently stated that AI is a transformative business opportunity, likening its impact to that of the internet. Many of today's biggest and most influential companies are primarily technology firms or heavily rely on technology.

Investing in the Invesco Nasdaq 100 ETF provides exposure to numerous tech companies at the forefront of the AI revolution. As of early 2024, approximately 60% of the ETF consists of tech stocks, with another 20% in consumer discretionary categories. Notably, companies like Amazon and Tesla, which have significant tech segments, are classified as consumer discretionary.

The ETF features a strong lineup of top tech holdings, which together comprise more than 50% of the overall portfolio. Here are the top 10 holdings in the Invesco Nasdaq 100 ETF along with their weightings:

Holding	Weighting		Holding	Weighting
Apple	8.8%		Broadcom	4.5%
Nvidia	7.9%		Meta Platforms	3.9%
Microsoft	7.7%		Tesla	3.4%
Amazon	6.3%		Costco Wholesale	2.9%
Alphabet	5.5%		Netflix	2.7%

Source: Invesco.

The Invesco Nasdaq 100 ETF has a well-documented track record of outperformance. Since its launch in 1999, it has exceeded the S&P 500 index by an impressive 443.4%, achieving a remarkable overall gain of 1,089% by the end of 2024.

In the past decade alone, the ETF has increased by 459%, significantly outpacing the S&P 500's return of 263%. This translates to an average annual return of 18.8%. Over the last five years, the ETF delivered a return of 146.2%, or 19.8% per year, compared to the S&P 500's return of 102.6%, or 15.2% annually.

Moreover, the ETF has historically outperformed the S&P 500 on a rolling 12-month basis 87% of the time over the past 10 years and 84% of the time in the last five years.

The Importance of Regular Investing

While investing in the Invesco Nasdaq 100 ETF is an excellent choice for a $1,000 investment, to grow your wealth over time, it's crucial to set aside money regularly. This can be achieved through a strategy called dollar-cost averaging, where you invest consistently at set intervals every month, regardless of the ETF's performance.

The market will experience fluctuations, hence maintaining consistency during both good and bad periods is key. Though bear markets can be unsettling, they are often short-lived and represent great opportunities for long-term investments. However, waiting for a bear market before making investments could lead to missing out on substantial gains, as bull markets can last for extended periods.

Since 1950, the S&P 500 has reached all-time highs on approximately 7% of its trading days, and a third of these peaks have become new market floors from which prices do not decline further.

Note: This article does not endorse any specific investment product and is for informational purposes only.

investment, ETF, stocks