Key Points
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The Invesco QQQ Trust could turn a starting $10,000 investment into $3 million in three decades if past performance repeats.
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Investors have profited from some big tech trends, including mobile and cloud computing, digital advertising, and artificial intelligence.
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Even though it’s reasonable to expect the Invesco QQQ Trust’s gains to come down in the future, this ETF is still a solid investment candidate.
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The ultimate goal of investing is to raise your purchasing power over time. At a high level, it’s that simple. However, investors can also benefit from gains that exceed expectations. It’s about picking the right assets and staying patient and disciplined.
The Invesco QQQ Trust (NASDAQ: QQQ) is a popular exchange-traded fund (ETF) that has done just that. Its performance continues to be incredible, with shareholders reaping huge rewards. If this investment vehicle wasn’t on your radar before, it should be now.
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History says it could set you up for life. Here’s the math.
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Past gains have been impressive
Investors aren’t complaining about the QQQ’s historical performance. It has generated a total return of 572% in the past decade (as of Sept. 22). It’s impossible not to come away impressed by a gain that would have increased your portfolio balance by a factor of almost seven in 10 years.
The technology sector accounts for 66% of this ETF’s asset base. There is a heavy concentration toward these kinds of businesses. The top 10 stocks make up 47% of the portfolio.
That has obviously worked out well. The rise of mobile computing, cloud computing, and digital advertising has spurred the success of companies like Apple, Amazon, Alphabet, Microsoft, and Meta Platforms.
Artificial intelligence (AI) is a recent secular trend that has had a profound impact. The ETF’s top holding is Nvidia, which has a market capitalization of $5.5 trillion. Its powerful data center chips have propelled the AI infrastructure boom, resulting in outsize revenue and profit growth for the business.
No one knows what the future will bring. However, should the QQQ’s performance in the last decade hold up, long-term investors are in for massive gains. Assume that the 21% annualized total return registered since September 2016 is what investors can expect in the future. After 30 years, a $10,000 starting investment made today would be worth more than $3 million.
Investors can further increase their returns by dollar-cost averaging. Buying an incremental $100 per month of QQQ over the same 30-year stretch would result in an ending balance of nearly $5 million. Building a habit of consistent investing clearly pays off.
Investors should lower the bar
The Invesco QQQ Trust’s historical returns have been nothing short of spectacular. And bullish investors certainly want the momentum to continue indefinitely. The ability to generate substantial long-term wealth is encouraging.
However, investors should become familiar with the investing rule that past performance doesn’t guarantee future results. This line of thinking should be applied to this popular ETF. I believe it’s best to temper expectations as we look at the next 30 years. That’s because it might be unreasonable to believe 21% annualized total returns can continue indefinitely.
The bullish case is that the QQQ’s most prominent companies are still undervalued relative to their growth potential. After all, Nvidia’s net income skyrocketed more than 126% in its latest fiscal quarter, but the stock trades at just 25 times the forward-12-month average earnings estimate. With AI still in the very early innings of its development, this new technology could provide a jolt to economic growth that directly benefits the businesses sitting at the center of the revolution.
The other way to think about this is to expect mean reversion. Investors with a more muted outlook would agree that these dominant technology enterprises can’t post rapid growth forever. It would be totally normal to see a natural period of revenue and profit increases slowing. At that point, share-price gains would come down.
There is no denying the fact that the Invesco QQQ Trust is a solid investment candidate that could set you up for life. But even if it fails to generate supercharged returns, it can still be a fantastic wealth builder.
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Neil Patel has positions in Invesco QQQ Trust. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
