QQQ vs. QQQM: Which Invesco Nasdaq ETF Is the Smarter Buy?

For growth investors who just aren’t satisfied with the technology exposure provided by the S&P 500, there’s the Invesco QQQ Trust (NASDAQ:QQQ). Undoubtedly, the QQQ is a popular option for young passive investors who believe in emerging tech themes and actively seek out more of an overweight position to the mega-cap innovators that have already led markets this far.

Indeed, for those who just can’t get enough of the Magnificent Seven (or is it Mag Eight now?) as they begin to drag their feet after two years of spectacular gains, the QQQ could be the one ETF to buy while it’s down close to 5% from its recent all-time high.

Undoubtedly, as long as you’re aware of the heightened volatility and downside risks versus the S&P 500 and Dow Jones Industrial Average, the QQQ seems like a potentially rewarding long-term bet that may very well help investors gain a leg up on the broad market as they hike their exposure to the AI beneficiaries.

But before deciding which flavor of Nasdaq 100 ETF to go for, one must ask oneself if it’s the right index to target.

Is the Nasdaq 100 right for you?

While the Nasdaq 100, the index that the perhaps more famous QQQ follows has diversification beyond the tech sector, it’s noteworthy that the index excludes non-financial firms, most notably the big banks, and insurers.

That said, in terms of high-tech financial exposure, you are getting some top-notch fintech names, including PayPal Holdings (NASDAQ:PYPL) and Intuit (NASDAQ:INTU), which stand to benefit greatly as AI comes to the financial scene. In any case, the financial exposure is somewhat limited, and for no real good reason other than such, financials tend to trade on the NYSE rather than the Nasdaq.

Undoubtedly, the Nasdaq is known to have more exciting, growthier, young companies than the NYSE, which may be known for more mature firms. Though, of course, there are exceptions to this!

Depending on who you ask, the Nasdaq 100 isn’t the best “index” in the world, especially stacked up against a traditional (or “true”) index like the S&P 500. Either way, I think the criteria for inclusion into an index (the QQQ only has Nasdaq-traded names, so you won’t find your favorite NYSE stocks here) are less important than its top holdings. That’s why I’d urge investors to look at what’s in the QQQ before committing to buying rather than going by the chart and the ETF or index’s reputation alone.

In the case of the Nasdaq 100, you’re getting more AI heavyweights for your dollar compared to the S&P 500. Of course, such an overweighting would have been more pronounced had it not been for the rebalancing to ensure its top five holdings don’t comprise more than 40% of the index.

So, is the QQQ or the QQQM a better bet?

Undoubtedly, the QQQ and the Invesco Nasdaq 100 ETF (NASDAQ:QQQM) follow the very same Nasdaq 100. That said, there are notable differences between them that investors should be aware of. Notably, the QQQM has a lower total expense ratio of 0.15% versus 0.20% for the QQQ.

Indeed, the slightly lower fee comes at the cost of liquidity. However, if you’re a long-term investor and not a trader, I’d argue that the difference in trading volume isn’t such a big deal. As a long-term investor, I’d go for the lower-cost QQQM every time. Over the course of many decades, the seemingly small 0.05% difference in fees could amount to quite a significant sum.

In any case, the big question that investors should ask themselves is which index (Nasdaq 100 or S&P 500) is a better fit for them.

The post QQQ vs. QQQM: Which Invesco Nasdaq ETF Is the Smarter Buy? appeared first on 24/7 Wall St..