VOO vs. QQQ: Which ETF Is Better for You?

Two of the most popular ETFs among investors are the Vanguard S&P 500 ETF (VOO) and the Invesco QQQ ETF (QQQ).

In this article, we will compare VOO vs QQQ on various aspects, such as performance, risk, expense ratio, holdings, and dividends. We will also provide some guidance on how to decide which ETF is better for your investment goals and risk tolerance.

VOO vs. QQQ Overview

VOO and QQQ are both large-cap ETFs that invest in U.S.-based companies. However, they track different indexes and have different compositions and focuses.

VOO tracks the S&P 500 Index, which is a broad-based index that includes 500 of the largest U.S. companies across various sectors and industries. It is widely considered as a proxy for the U.S. stock market and the U.S. economy.
QQQ tracks the Nasdaq-100 Index, which is a narrower index that includes 100 of the largest non-financial companies listed on the Nasdaq stock exchange. It is heavily weighted toward the technology sector, but also includes companies from other sectors, such as consumer discretionary, communication services, health care, and industrials.

VOO vs. QQQ Performance and Risk Comparison

One of the main factors to consider when comparing VOO vs QQQ is their performance and risk profile. Both ETFs have delivered strong returns over the long term, but QQQ has outperformed VOO by a significant margin in recent years.

QQQ is up around 115% in the last five years, while VOO is up around 75%.

The main reason behind QQQ’s superior performance is its heavy exposure to the technology sector, which has been one of the best-performing sectors in the past decade. Technology companies have benefited from strong demand for their products and services, especially during the COVID-19 pandemic, which accelerated the adoption of digital technologies across various industries and sectors.

However, QQQ also comes with higher risk than VOO, as it is less diversified and more volatile. QQQ has a higher concentration of its assets in its top holdings, which makes it more susceptible to the performance of individual stocks or sectors.

Therefore, QQQ may be more suitable for investors who are willing to take on more risk in exchange for higher potential returns, while VOO may be more suitable for investors who prefer lower risk and more stability.

Expense Ratio Comparison

Another factor to consider when comparing VOO vs QQQ is their expense ratio. A lower expense ratio means that more of your money goes toward your investment returns rather than fees.

Both VOO and QQQ have low expense ratios compared to the average ETF fee of 0.44%, according to Morningstar. However, VOO has a slight edge over QQQ in this aspect.

VOO has an expense ratio of 0.03%, which means that it charges $3 per year for every $10,000 invested.
QQQ has an expense ratio of 0.20%, which means that it charges $20 per year for every $10,000 invested.

While the difference may seem small, it can add up over time and affect your long-term returns. For example, if you invest $10,000 in each ETF and they both earn an annual return of 10% before fees, after 20 years, you would end up with:

$63,427 in VOO, after paying $191 in fees.
$58,451 in QQQ, after paying $1,167 in fees.

Therefore, VOO may be a better choice for cost-conscious investors who want to minimize their fees and maximize their returns.

VOO vs. QQQ Holdings

As mentioned earlier, VOO and QQQ track different indexes and have different compositions and focuses. Here are some key differences between their holdings:

VOO holds 500 stocks from various sectors and industries, while QQQ holds 100 stocks from mainly the technology sector and a few other sectors.
VOO has a higher exposure to sectors such as financials, health care, industrials, and consumer staples, while QQQ has a higher exposure to sectors such as technology, consumer discretionary, and communication services.
VOO has a higher allocation to value stocks, which are stocks that trade at low prices relative to their earnings, dividends, or book value. Value stocks tend to be more stable and less volatile than growth stocks. They also tend to pay higher dividends and have lower price-to-earnings (P/E) ratios.
QQQ has a higher allocation to growth stocks, which are stocks that have high expectations for future earnings growth. Growth stocks tend to be more dynamic and innovative than value stocks. They also tend to reinvest their earnings rather than pay dividends and have higher P/E ratios.

VOO vs. QQQ Dividends

Dividends are payments that companies make to their shareholders from their earnings. Dividends can provide a steady source of income for investors, especially during market downturns or periods of low interest rates.

Both VOO and QQQ pay dividends to their shareholders, but they have different dividend yields and histories.

VOO has a dividend yield of 1.55%, while QQQ has a dividend yield of 0.55%.
This means that if you invest $10,000 in each ETF, you would receive $155 per year in dividends from VOO and $55 per year in dividends from QQQ.

Therefore, VOO may be a better choice for income-oriented investors who want higher and more stable dividends, while QQQ may be a better choice for growth-oriented investors who are less concerned about dividends.

VOO vs. QQQ - Bottom Line

VOO and QQQ are both popular ETFs that offer low-cost and diversified exposure to the U.S. stock market. However, they have different characteristics and performance histories that make them suitable for different types of investors.

VOO is a broad-market fund that tracks the S&P 500 Index, which includes 500 of the largest U.S. companies across various sectors and industries. It is a relatively stable and low-risk investment that provides more diversification, lower fees, and higher dividends than QQQ. It may be a better choice for investors who prefer lower risk and more stability, as well as income-oriented investors who want higher and more consistent dividends.
QQQ is a tech-heavy fund that tracks the Nasdaq-100 Index, which includes 100 of the largest non-financial companies listed on the Nasdaq stock exchange. It is a more concentrated and high-risk investment that provides more exposure to the technology sector and growth stocks than VOO. It may be a better choice for investors who are willing to take on more risk in exchange for higher potential returns, as well as growth-oriented investors who are less concerned about dividends.

Ultimately, the best ETF for you will depend on your investment goals, risk tolerance, time horizon, and personal preferences. You may also consider investing in both ETFs to achieve a balanced portfolio that combines the advantages of both funds.

FAQ

Is there a Vanguard equivalent to QQQ?

There is no exact Vanguard equivalent to QQQ, as QQQ tracks the Nasdaq-100 Index, which is a narrower index that includes 100 of the largest non-financial companies listed on the Nasdaq stock exchange. However, some possible alternatives are:

Vanguard Information Technology ETF (VGT): This ETF tracks the MSCI US Investable Market Information Technology 25/50 Transition Index, which includes 357 U.S. companies in the information technology sector. It has a similar exposure to the technology sector as QQQ, but it also includes smaller and mid-cap companies that are not in QQQ.
Vanguard Growth ETF (VUG): This ETF tracks the CRSP US Large Cap Growth Index, which includes 258 U.S. companies that exhibit growth characteristics. It has a broader exposure to various sectors and industries than QQQ, but it also has a high allocation to technology and consumer discretionary stocks.

Does QQQ beat the S&P 500?

QQQ has beaten the S&P 500 in recent years, as it has benefited from the strong performance of the technology sector and growth stocks. However, this may not always be the case, as QQQ is also more volatile and less diversified than the S&P 500.

What is the expense ratio of VOO vs QQQ?

VOO has an expense ratio of 0.03% and QQQ has an expense ratio of 0.20%.