VOO and QQQ are two of the most popular index ETFs in the market, and they trigger a lot of discussion.
But you may wonder, what are they, what are the differences, and which one is better to choose to invest in?
So, I will give you a brief introduction on both ETFs, compare them, and teach you which one is better. In the end, I will share my way of choosing them.
Let’s get started!
What are VOO and QQQ?
Before choosing them, we must know what these ETFs are.
VOO is the abbreviation of Vanguard S&P 500 ETF, which copies and tracks all composites and performances of S&P 500, to keep the same pace with the index.
QQQ’s full name is Invesco QQQ Trust Series 1, it’s based on the Nasdaq 100, which selects top 100 highest market value stocks in Nasdaq, and composes an index. No matter in composites and performances, QQQ keeps the same pace with Nasdaq 100.
What are the differences between them?
After knowing the background of 2 ETFs, we now compare the differences between them, from the following 4 aspects:
Risk distribution
The first aspect is risk distribution, we can observe it from the industries they involved, and the numbers of composites.
Here’s the list of top 5 industries for both ETFs (VOO is as of 2024/1/31, QQQ is as of 2023/12/31):
| VOO | % | QQQ | % |
| Information Technology | 29.50% | Technology | 57.64% |
| Financials | 13.10% | Consumer Discretionary | 19.00% |
| Health Care | 12.80% | Health Care | 6.95% |
| Consumer Discretionary | 10.30% | Telecommunications | 5.03% |
| Communication Services | 8.90% | Industrials | 4.79% |
Per statistics above, we can see that VOO has higher weights on multiple industries, like Information Technology, Financials, Health Care, and Communication Services. None of them have weight above 30%.
This is good for reducing risk, and no need to tie the risk to one industry.
In contrast, QQQ has nearly 60% are on technology, basically the performance of ETF is all tied to it.
Next, let’s compare the composites for both ETFs:
| VOO | QQQ | |
| Composites | 505 | 101 |
Apparently, VOO has lower risk than QQQ as the risk can be distributed to 505 stocks, comparing only 101 stocks to bear the risk.
Voltility
The second aspect is volatility, meaning how the ETF goes with index, this can be verified by beta.
The beta is the relationship between stock and the index. If it is 1, meaning that the stock price has the same direction and extent to the index. If it falls below 1, meaning it doesn’t 100% tie to the index, or less relationship. On the contrary, the stock price will go faster than the index.
The beta of VOO and QQQ are 1 and 1.17 respectively, you can find them from Yahoo! Finance:
Since QQQ has higher beta than VOO, the volatility is also higher than VOO.
Fees
The next aspect is fees, and here’s how they charge:
| VOO | QQQ | |
| Fees | 0.03% | 0.2% |
VOO has the lowest fee, only 0.03%, it’s much lower than QQQ (though 0.2% is also pretty low), meaning that we can save more of our profit.
Performances
Finally, the last one is performances.
Here’s the annual returns of them (summarize from VOO and QQQ website, as of Jan. 31, 2024) :
| YTD | 1-year | 3-year | 5-year | 10-year | Since inception | |
| VOO | 1.60% | 20.77% | 10.97% | 14.24% | 12.57% | 13.91% |
| QQQ | 1.82% | 42.50% | 10.55% | 20.74% | 18.10% | 9.49% |
No matter short term or long term, QQQ performs better than VOO most of the time.
Which is better?
Now, let’s talk about the most critical question, which one is better?
To answer this, we need to know your preference of risk, wanting to earn more or less but stable. Here, I roughly separate 2 kinds of people, and answer per their preference:
For those prefer to be stable
If you want to earn less but stable, then VOO must be a choice for you.
VOO has relatively low volatility than QQQ, which can make you feel better and comfortable to hold it long.
Also, VOO can provide more than 10% return since inception in 2010, that is much higher than 80% investor’s performance, and you don’t need to do anything, just buy and hold it.
For those chasing thrilling
If you want your asset growing fast, and you are well-trained to face the higher volatility, then QQQ should be your great choice.
Actually, the growth of the US stock market was driven by the tech. companies, like Apple, Microsoft, Amazon, Google, etc. With their innovation, the profit for these companies is rolling very fast, and they contribute to the growth of the US economy, and the whole world.
Investing in QQQ, not just invest in the boom of the economy, but also the innovation of the new world.
How do I choose it?
Here, let me share how I choose them.
Basically, I choose VOO and QQQ both with different weights.
I invest VOO more as I know, if I face high volatility, I am more anxious and cannot live well, always thinking what to do.
But in another way, I want to enhance my portfolio performance a little more, so add QQQ in my invest list, even if the volatility is high.
For the fund allocation, I put no less than 80% on VOO, and no more than 20% on QQQ.
Under such allocation, I can hold them without too many worries, but also can enjoy higher returns in my portfolio.