What Is An ETF? Vanguard VOO ETF vs Invesco QQQ ETF: Which is Better for You?

Rinse and repeat | Oanda

Investing in mutual funds and ETFs is a fundamental part of long-term investing. In addition, when comparing ETFs to individual stocks, they are typically seen as safer investments since they are more diversified.

Many of these funds aim to track specific indexes. Two examples of this are VOO which seeks to track the S&P 500 Index, and QQQ, which follows the NASDAQ 100 index. However, it can be hard to figure out which might be a better investment. Below is a comparison of these two popular funds to help you reach a decision.

VOO vs. QQQ: Issuer

When it comes to VOO vs. QQQ from an issuer standpoint, you're dealing with two very large firms. VOO is issued by Vanguard, the largest issuer of mutual funds globally. They are also the second-largest issuer of ETFs. So, needless to say, you don't become that large without knowing what you're doing.

QQQ is issued by Invesco, another large and well-known issuer of mutual funds and ETFs. With more than $1.6 trillion in managed assets, it’s safe to say investing with an Invesco fund is a pretty safe bet.

VOO vs. QQQ: Underlying Index Followed

As mentioned early, VOO aims to track the S&P 500 Index. The S&P 500 Index seeks to track the 500 leading publicly traded US companies. Market capitalization is the primary criterion for a company to be included in the S&P 500 Index fund, but it is not the only criterion.

QQQ aims to follow the NASDAQ 100 Index. The NASDAQ 100 Index includes 100 of the largest domestic and international non-financial companies based on market capitalization listed on the Nasdaq Stock Market.

VOO vs. QQQ: Expense Ratios

Expense ratios can be vital information when deciding what fund to invest in. Even a tiny difference can become thousands of dollars over the course of investing in a fund for 10 to 20 years.

Essentially, with managed funds, there are expenses that go along with it. These expenses could be salaries to pay analysts or portfolio managers, management fees, rent for office space, and many others. Many funds will pass some or all these expenses on to you, the investor. The amount passed to you is shown as the expense ratio.

When looking at VOO and QQQ, there is a stark difference in their expense ratios. While VOO maintains a meager 0.03% ratio, QQQ has a much higher ratio of 0.2%. For QQQ, that's more than six times that of VOO, which can add up to a lot of money paid to the fund over the long term.

VOO vs. QQQ: Minimum Initial Investments

Minimum initial investments (MII) will vary per fund and firm. The minimum initial investment only applies when you initially invest in a fund. Many funds require $100 - $5000 or more for your first investment. After that, you are free to invest any amount you wish on subsequent investments with the same fund.

VOO’s current MII is the asking price of one share on that trading day. To give you an idea, as of writing this, VOO stands at roughly $387 per share.

QQQ, however, has no minimum initial investment. QQQ is currently sitting at a share price of about $320, but you can essentially invest $1.

VOO vs. QQQ: Net Assets and Holdings

Comparing VOO vs. QQQ, each fund's top ten holdings are identical; see below. The main difference here is that while holding the same funds, VOO has roughly 24.7% of its $1.3 trillion ($321.1. billion) total assets in these stocks. In comparison, VOO holds about 29.5% of its $808.8 billion in the top ten holdings, roughly $238.6 billion.

VOO vs. QQQ Top Holdings:

Although tracking different indexes, VOO and QQQ have similar holdings in their top 10. Seven of the top holds are the same with:

Apple (AAPL)

Microsoft (MSFT)

Amazon (AMZN)

Tesla (TSLA)

Alphabet Class A and C (QQQ holds both, while VOO does not)

NVIDIA (NVDA)

Meta (FB)

QQQ rounds out its top 10 with Costco (COST) and PepsiCo (PEP), while VOO holds UnitedHealth Group (UNH), Johnson & Johnson (JNJ), and Berkshire Hathaway (BRK.A, BRK.B).

While sharing similar stocks as their top 10, the amount invested in each varies slightly.

VOO vs QQQ: Compositions

One of the areas in which the VOO vs. QQQ comparison will differ is the fund composition. As mentioned earlier, VOO aims to track the S&P 500 Index, while QQQ seeks to track the NASDAQ 100 Index.

As you might imagine, the number of stocks held in each is very different. QQQ currently has 102 different stocks. There are about 507 stocks in VOO, mostly large-cap and geared toward growth. Fewer stocks could generally be more volatile when there is more market volatility.

VOO vs. QQQ: Overall Performance

Of course, what most investors will put at the top of their criteria when determining which fund to invest in will be the performance! When looking at the performance of both VOO and QQQ, they both have very similar returns to the indexes they aim to track.

Even though we say they have similar top 10 holdings, QQQ's returns over the past 1, 5, and 10 years have been much higher. It should be noted that NASDAQ tends to hold more Technology and tech-related stocks, a booming market sector over the past decade.

QQQ Performance:

QQQ Performance

VOO Performance:

VOO Performance

It should still be noted that the return over each fund's lifespan is better for VOO. It could also be a less volatile fund with more stocks being held meaning it is probably more diversified.

VOO vs QQQ: Which is better?

When making any investment, it comes down to your comfort level. The significant factor in VOO vs. QQQ is the performance, with QQQ winning out during the tech boom era. However, overall, VOO has had better long-term returns.

VOO also has a much lower expense ratio, which should not be taken lightly as QQQ will need to continue outperforming VOO significantly to make up for its fees.

VOO also holds more stocks, probably making it a less volatile fund to invest in.

VOO vs. QQQ: Final Thoughts

Both funds are backed by large asset managers in Vanguard and Invesco. Either ETF would make good additions to an investor's portfolio. While QQQ has better recent performance, the tech boom could be over since technology stocks are struggling in 2022, and the expense ratio is higher. On the other hand, VOO has better long-term total returns and would probably be less volatile. It can also serve as a core holding in some version of the Bogleheads 3-Fund portfolio. In the end, both have strengths and weaknesses. You'll need to determine which better fits your investment style and needs.

Disclosure: None

Author Bio: The author is the founder of the Dividend Power site. He is a self-taught investor and blogger on dividend growth stocks and financial independence. Some of his writings can be found on Seeking Alpha, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, FXMag, and leading financial blogs. He also works as a part-time freelance equity analyst with a leading newsletter on dividend stocks. He was recently in the top 100 and 1.0% (81st out of over 9,459) of financial bloggers as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.

Disclaimer: The author is not a licensed or registered investment adviser or broker/dealer. He is not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money. 

Rinse and repeat | Oanda

Dividend Power

Dividend Power is a self-taught investor and blogger on dividend growth stocks and financial independence. Some of his writings can be found on Seeking Alpha, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial blogs. He also works as a part-time freelance equity analyst with a leading newsletter on dividend stocks. He was recently in the top 3% out of over 8,116 financial bloggers as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.