TQQQ vs QQQ: Which is the better tech ETF to buy?

Technology has long been the best-performing sector in the United States. Companies like Nvidia, Google, Meta Platforms, and Netflix each dominate their respective sectors. And despite their huge size, these companies are continuing to have double-digit growth.

There is always a risk for investing in single stocks, as Tesla has demonstrated recently. After rising to $300 in 2023, Tesla shares have retreated to $190, making it the worst-performing Magnificent stock. We also saw the implosion of other single stocks like Rivian, Mullen Automotive, and Tilray Brands.

This is where investing in ETFs comes in. When investing in technology companies, Invesco QQQ is one of the best funds because it tracks companies in the Nasdaq 100 index. Other similar ETFs are the Vanguard Information Technology ETF (VGT) and Invesco Nasdaq 100 ETF (QQQM).

Therefore, an investor seeking to benefit from the technology sector comeback has a few options available. Invesco QQQ ETF is the biggest of these funds with over $245 billion in assets under management. The other option is buying the ProShares UltraPro QQQ ETF, which is a highly modified version of QQQ.

QQQ is a generic ETF, meaning that it tracks companies in the Nasdaq 100 index. Its biggest companies are firms like Microsoft, Apple, Amazon, Nvidia, Broadcom, and Meta Platforms. These big names account for over 45% of the total ETF, which is quite risky.

TQQQ, on the other hand, is a leveraged fund that aims to achieve three times of daily returns. For example, TQQQ jumped by 3% on Monday as the QQQ rose by 1.02%. This means that the fund does well in good times and then underperforms when conditions are not good.

Historically, TQQQ has outperformed QQQ. For example, in the past five years, the TQQQ ETF has risen by more than 457% while QQQ has jumped by 174% in the same period. Take note that TQQQ’s total returns did were not 522% (or 174×3). This happened because TQQQ is only interested in the daily performance ofthe Nasdaq 100 index.

While TQQQ is interested in daily performance, a look at its long-term trends shows that it does well when tech stocks are thriving and vice versa. For example, the ETF collapsed by more than 82% between November 2021 and October 2022. QQQ fell by 37% in the same period. In the long-term, TQQQ has risen by 400% since inception while QQQ has jumped by 160% in the same period.

Therefore, in my opinion, while QQQ is a better ETF, especially for risk-averse investors, I believe that investing in TQQQ makes sense. In this case, QQQ investors can decide to allocate a small portion of their funds to TQQQ. 

Besides, the Nasdaq 100 index, together with other American indices like the S&P 500 and Dow Jones have proven that they always rise over time. They all recovered after the dot com bubble burst in early 2000 and after the Global Financial Crisis of 2008/9. Most recently, these indices bounced back after collapsing in 2022 after the Fed hiked interest rates.

This is the same reason why I recommended against buying the ProShares UltraPro Short QQQ ETF, which is the opposite of TQQQ. SQQQ has crashed by almost 100% since its inception in 2010.

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