We are going to explore the difference between Vanguard Information Technology ETF (VGT) vs Invesco QQQ Trust (QQQ).
When it comes to investing there is no shortage of fund options. Choosing between two funds can be difficult, but I will make it easy for you to decide between VGT and QQQ.
VGT vs QQQ
The primary difference between VGT and QQQ is the company that offers the exchange-traded fund (ETF). VGT is offered by Vanguard while QQQ is offered by Invesco. Another significant difference is the number of stocks in each, with VGT having 357 different companies in the index compared to 100 with QQQ.
- Tracks the MSCI US IMI Info Technology 25/50 (Benchmark)
- Has an expense ratio of 0.1%
- No minimum initial investment
- Holds 357 stocks
- Tracks the performance of the Nasdaq-100 Index
- Has an expense ratio of 0.2%
- No minimum initial investment
- Holds 100 stocks
VGT vs QQQ Performance
VGT and QQQ have performed differently over the last 5 years with VGT beating QQQ by more than 3%. However, they are very similar in their performance returns over 10 years.
Similarities between QQQ and VGT:
- Exchange-Traded Funds (ETFs)
- Similar Performance Over The Long-Term
- Focused On Growth Companies
- Low Expense Ratios
Here is how their performance compares:
As you can see, they perform almost identically over the last 10 years with VGT only beating QQQ by 0.64%.
VGT and QQQ Differences
VGT vs QQQ primarily differ in that VGT holds almost three times as many stocks. QQQ holds roughly 100 stocks making it smaller in size compared to most other ETFs. By investing in an ETF with more holdings you are helping diversify your portfolio and minimize risk.
Differences between VGT and QQQ:
- Different Number Of Holdings (~357 vs ~100)
- Level Of Diversification (Even though both are significantly tech weighted)
- Fund Inception: 2004
- Expense Ratio: 0.1%
- Number Of Stocks: 357
- Top 10 Holdings: 57.1%
Here are the top 10 holdings for the Vanguard Information Technology ETF (VGT):
The fund, as of June 30th, 2021 has $54.1 billion total net assets.
VGT is largely made up of Apple, Microsoft, NVIDIA, VISA, and Paypal and provides exposure to over 300 stocks. However, with the top 10 holdings making up over 50% of the portfolio, it isn’t very diversified compared to other ETFs such as Vanguard Total Stock Market Index Fund ETF (VTI).
No Minimum Investment
VGT and QQQ are both exchange-traded funds (ETFs) which mean there is NO minimum investment. Investors looking to buy fractional shares can use platforms like M1 Finance.
Normally, fractional shares are not available for ETFs but with M1 Finance you can purchase fractional shares with no commission.
Buying fractional shares allows you to maximize your investment. You no longer have to keep your money sitting idle until you have enough to purchase a full share. This is especially beneficial when it comes to shares of QQQ or VGT due to their high prices per share (~$360/Share and $415/Share respectively).
VGT Historical Returns
Taking a look at the historical chart below. You can see that VGT has outperformed the S&P 500 over the last 10 years.
However, be mindful that this does not guarantee the next 10 years will look the same.
- Fund Inception: 1999
- Expense Ratio: 0.2%
- Number Of Stocks: ~100
- Top 10 Holdings: 55.70%
The Invesco QQQ Trust (QQQ) provides investors with exposure to a similar portfolio to the Nasdaq 100 index. The ETF is comprised of mostly technology companies that are high in growth.
QQQ was created in 1999 and currently has an expense ratio of 0.2% which isn’t high but compared to VGT it is double the cost.
To put some perspective on that; here is what a 0.1% fee (difference between VGT and QQQ) will cost you as an investor over 30 years.
Assuming you start with an initial investment of $100,000 and contribute $10,000 each year, over the 30 years. You will have roughly ~$82,000 less in your account due to the fee because of the extra 0.1% expense ratio. That is not including costs to buy and sell your shares.
Moving on, here are the top 10 holdings for QQQ:
QQQ is largely made up of Apple, Microsoft, Amazon, and Facebook.
Over the last 10 years, QQQ has outperformed the S&P 500 with an average return of 21.25% per year as of June 30, 2021.
QQQ is an incredibly popular ETF with about 174.51B in net assets. It has absolutely performed well over the last 10 years but again there is no guarantee the next 10 years look the same.
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Which is Better VGT or QQQ?
VGT and QQQ are very similar investments. VGT offers more diversification since it holds about 3 times as many stocks. However, this hasn’t made a difference in their performance since they have both had virtually the same returns over the last 10 years.
For those reasons, I would say both are a great option for long-term investors. If having a larger basket of stocks helps you sleep at night, then VGT would be a better option.
Lastly, it’s important to consider costs and fees because they can cost you in the long run, as we saw from our example above. That’s why it’s so important to purchase and sell your shares commission-free.
Again a great way to do this is with M1 Finance. You can purchase fractional shares for free and they give you the ability to buy VGT, QQQ, and thousands of other stocks/ETFs.
Is VGT or QQQ Better for Financial Independence?
Both VGT or QQQ can get you to Financial Independence Retire Early (FIRE). They both have a similar return on investment and have low expense ratios.
Being part of the FIRE community I know we aim for the lowest fees possible and we’re a big fan of Vanguard.
My Winner: VGT
My winner is VGT solely based on the lower expense ratio and the fact that I love Vanguard. Vanguard is a brokerage that is investor-owned.
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This information is my opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.