VOO and QQQ, which one should I invest all my funds in? This one is the best for me!

I once shared that putting all $10,000 into VOO and QQQ and then leaving it untouched is a very good strategy.

However, you might consider simplifying it further by choosing just one between them to go all-in on. But which one would be better?

Therefore, under the condition of choosing only one, I will first list some basic statistics of them, including returns, volatility, and expense ratios. Then, I will explain the pros and cons of going all-in on each ETF separately. Finally, I will use my own experience to conclude which one would be better to go all-in on.

Comparison between VOO and QQQ

Firstly, let’s compare the returns, volatility, and expense ratios of both ETF:

Returns

Firstly, the returns of both ETF are as follows (compiled from VOO and QQQ official websites, data updated until February 29, 2024):

YTD1-yr3-yr5-yr10-yrSince inception
VOO7.03%30.40%11.85%14.72%12.66%14.27%
QQQ7.20%50.57%12.51%21.27%18.12%9.70%

From a long-term perspective, both of them have provided annual returns of nearly or over 10% over a period of ten years or more.

Volatility

Next, let’s look at the volatility by comparing the beta values of them.

The beta value indicates the degree of correlation between a stock’s price and the index. A value of 1 means the stock moves in line with the index, meaning it follows the market’s movements. A value less than 1 indicates it moves slower than the market, while a value greater than 1 indicates it moves faster than the market.

The beta value of VOO is 1, while the beta value of QQQ is 1.18 (or see below pic from Yahoo!Finance). This indicates that QQQ has higher volatility compared to VOO because it moves faster than the overall market.

VOO
QQQ

Expense Ratio

The expense ratio for VOO is 0.03%, while for QQQ, it’s 0.20%. Both are considered low-cost ETFs.

Benefits of Going All-In on VOO

You can enjoy the following merits for investing $10,000 all in VOO:

Easier to Hold for the Long Term with Peace of Mind

Investing all-in on VOO provides peace of mind as it tracks the S&P 500 index, known for its high sustainability, making it suitable for long-term investment.

Holding VOO allows you to earn the average market return without worrying about outperforming or underperforming others. With proper holding, it can provide an annual return of around 10%.

Industry Diversification

VOO offers a relatively evenly distributed industry allocation, preventing overreliance on a single industry.

If one industry faces headwinds and underperforms, there are other industries performing better to support the overall ETF’s performance, preventing significant declines and even driving price increases.

Hassle-Free Investment, Outperforming 80% of Investors

Investing in a high-quality ETF like VOO, which follows the market’s trend, allows for hassle-free investing without the need to analyze fundamental or technical factors.

By consistently investing and holding onto it, you can easily earn returns of around 10% annually, outperforming over 80% of investors in the market.

Downsides of Going All-In on VOO

Slower Earnings Compared to QQQ

As seen in the performance comparison chart, VOO indeed earns returns slower than QQQ over the past decade. If you seek faster asset accumulation, VOO may not be the most suitable option for you.

Unable to Escape Market Downturns

Generally, during significant downturns like the financial crisis or aggressive interest rate hikes by the Federal Reserve, all market performances are impacted negatively. It’s rare to see scenarios where the Nasdaq drops significantly while the S&P 500 surges.

Benefits of Going All-In on QQQ

Faster Earnings

Looking at long-term performance, QQQ indeed offers better annual returns compared to VOO. 

This is primarily because the development over the past few decades has been predominantly driven by tech companies. Their technological innovations have resulted in numerous market advantages, thereby boosting overall profitability and propelling QQQ’s stock prices higher.

Hassle-Free Investment

Similar to VOO, QQQ tracks the Nasdaq 100 Index, making it a highly sustainable investment option. It’s well-suited for hassle-free, regular, and systematic investing strategies.

Drawbacks of Going All-In on QQQ

High Volatility Can Be Intolerable

As previously mentioned in the comparison of volatility, QQQ’s beta value exceeding 1 indicates that it rises faster than the overall market but also falls deeper during downturns, leading to greater volatility. Facing such significant fluctuations without adequate preparation can easily lead to selling stocks due to psychological pressure, resulting in losses.

Concentration in Specific Industries

In QQQ, the information technology sector alone accounts for nearly 60% of the total composition. This means that QQQ’s investment performance heavily relies on the performance of these tech stocks. Consequently, even if other industries perform well, when these tech stocks underperform, QQQ’s performance may suffer as well.

Which One to All-In: VOO or QQQ?

After considering various factors, the decision on whether to all-in on VOO or QQQ ultimately depends on individual preferences and risk tolerance. 

However, personally, I believe all-in on VOO is more suitable.

The primary reason is the significantly lower volatility of VOO compared to QQQ. The high volatility of QQQ can easily induce psychological pressure for the average investor, potentially leading to impulsive selling of holdings. On the other hand, although VOO may not offer as high returns as QQQ, its relatively lower volatility reduces the likelihood of experiencing excessive stress and makes it easier to hold for the long term.

Of course, if you have developed a strong psychological resilience and remain unaffected by significant market fluctuations, all-in on QQQ could be a viable option. Ultimately, it boils down to your risk appetite and ability to withstand market volatility.

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