QQQ vs. VTI: Which ETF Deserves to Anchor Your Portfolio?

Whether you’re just jumping into the world of trading or nearing retirement, investing in ETFs can help you easily build a reliable portfolio.

ETFs stand out for instant diversification. These professionally-managed funds can invest in hundreds or even thousands of stocks. And they are also known for low costs and tax efficiency.

But with thousands of ETFs out there, where do you start?

To help, we narrowed it down to two stand-out ETFs. These are the Invesco QQQ (NASDAQ:QQQ) and Vanguard Total Stock Market ETF (NYSEARCA:VTI)

So let’s take a closer look.

Invesco QQQ Trust (QQQ)

The Invesco QQQ Trust ETF tracks the tech-heavy Nasdaq-100, which gives you exposure to the 100 largest non-financial companies in the U.S.

And with 60.84% of its holdings anchored in the tech sector, the QQQ will give you access to Magnificent Seven giants like Nvidia (NASDAQ:NVDA), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN)

QQQ has $385.76 billion in net assets. And it boasts an impressive year-to-date daily total return of 18.20%. You can also benefit from its competitive 0.20% expense ratio.

The QQQ could be ideal for the growth-focused investor seeking higher returns. But with its emphasis on tech, it may be most suitable for those who believe that the AI boom will continue to shake the markets. Of course, with its reliance on the tech industry, a QQQ investor may also require a moderate risk tolerance.

But if this doesn’t sound like you, it’s not your only option.

Vanguard Total Stock Market ETF (VTI)

The Vanguard Total Stock Market ETF (VTI) tracks the CRSP US Total Market Index. It gives you exposure to more than 3,500 U.S. companies across small, mid- and large cap stocks. It also spans industries including tech, financials, consumer staples and utilities. Here, you’ll also find some of the tech behemoths you’d find in QQQ. But you’ll also get exposure to financial giants like JPMorgan Chase & Co. (NYSE:JPM) Visa Inc. (NYSE: V) and Mastercard Inc.

It outshines QQQ with total net assets of $2.02 trillion. But it also carries a lower year-to-date total return of 13.83%. However, its expense ratio of 0.03% stands out as among the industry’s lowest.

The VTI may be most suitable to the risk-averse investor who’s seeking steady and consistent returns.

But before you make your decision, let’s take a look at how these two ETFs differ based on key factors.

Diversification

A key to investing is diversification. If one sector suffers, you can mitigate risk with the performance of others.

Tech accounts for more than half of QQQ’s holdings. So if the tech sector takes a hit, the QQQ could be severely impacted. This occurred in 2022.

The VTI is broadly diversified across thousands of stocks that span market caps and sectors. But it’s important to note that tech accounts for 36.60% of its holdings, taking the largest chunk of the pie. Still, it offers exposure to several other industries including financials, which is excluded by QQQ.

The QQQ’s volatility or standard deviation stands at higher 20% than the VTI’s 15%.

Performance

The QQQ has historically outperformed the VTI with its focus on growth stocks and the recent performance of the tech sector.

Here are some performance metrics at a glance.

QQQ

• YTD: 18.20%
• 5-year: 122.77%
• 3-year: 128.94%
• 1-year: 23.66%

VTI

• YTD: 14.34%
• 5-year: 15.66%
• 3-year: 24.09%
• 1-year: 17.34%

As you can see, the QQQ has outperformed the VTI overtime. But continued performance may depend on the continued positive trajectory of the tech sector. In addition, the VTI delivers a stronger yield of 1.16% against the 0.48% yield of QQQ.

Our verdict

The decision ultimately depends on your investing goals, risk tolerance, time horizon and other factors.

But you may want to go with the VTI if you’re looking for a low-fee, low-volatility ETF that can provide moderate, yet steady returns. It may also suit you if you’re nearing retirement.

On the other hand, if you’re more growth focused and have a moderate risk tolerance with a longer time horizon, you may be interested in the QQQ.

Still, nothing says you can’t have both. The VTI and QQQ can both find a cozy place in your portfolio. Combining them can give you diversification with high-growth potential. But these are just pieces of the puzzle. You should look into other ETFs from providers like Schwab and Fidelity.

So far, we’ve discussed two stock-focused ETFs. But you can diversify your portfolio with other securities like bond ETFs, alternative investments and Treasury securities.