Key insights
- The article recommends two growth ETFs, Invesco QQQ Trust and Vanguard S&P 500 Growth ETF, for long-term investment, highlighting their exposure to AI-driven growth stocks like Nvidia, Apple, and Microsoft. While these ETFs have outperformed the S&P 500 year-to-date, the author cautions that they tend to fall more during market downturns, emphasizing the need for a 20-year holding period to mitigate this risk. The dynamic nature of ETFs, which adjust holdings as new growth stocks emerge, is also noted as a benefit.
Growth stocks are driving strong market gains right now. For example, the Nasdaq-100, an index of top tech stocks, is up 22% year to date, nearly double the S&P 500's 12% gain.
If you're looking for high exposure to these trends, I recommend the Invesco QQQ Trust exchange-traded fund (ETF) (QQQ 4.64%) and the Vanguard S&P 500 Growth ETF (VOOG 3.79%). But I also recommend holding them for 20 years. Here's why.
Growth stocks tend to outperform in strong bull markets, and that's what's happening today. Artificial intelligence (AI) stocks are driving outperformance, and they're highly represented in growth indexes like the Nasdaq-100, which the Invesco ETF tracks, and the S&P 500 Growth Index, which the Vanguard ETF tracks.
The Invesco ETF's largest positions are in Nvidia, Apple, Microsoft, Amazon, and Tesla, while the Vanguard ETF's top holdings are Nvidia, Microsoft, Meta, Apple, and Broadcom.
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By investing in one or both of these ETFs, you get access to many of the best growth stocks on the market without having to pick and choose, and without one of them weighing too heavily on your portfolio. An added benefit is that the ETF's makeup will change as the fastest-growing stocks rise, giving you new growth stocks without you having to lift a finger. For example, when SpaceX goes public next week, it may be included in these ETFs.
The reason it's so important to adopt a long-term mindset when investing in these ETFs is that, in a market downturn, they tend to fall more than the S&P 500. If you were to buy them today to get in on the AI hype, you would open yourself up to the risk of underperformance whenever there's a correction or a crash.
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Invesco makes it clear that this ETF is not diversified and likely to be more volatile than a diversified one. The Vanguard fund, which has 144 stocks, is slightly more diversified. The gains over time tend to match the risk level.
The Invesco ETF has gained 1,600% since inception in 1999, nearly double the S&P 500's 870% gain over that time, while the Vanguard ETF has gained 1,100% since inception in 2010, versus 832% for the S&P 500.
However, consider how they performed in 2022, the most recent year the S&P 500 lost value:
But then consider how they've recovered:
That's why these are excellent picks for investors with patience who can hold them for at least 20 years.