Should Investors Own Vanguard's VOO ETF Over Invesco's QQQ for Broader Diversification?

Between Invesco QQQ Trust, Series 1 (NASDAQ:QQQ) and Vanguard S&P 500 ETF (NYSEMKT:VOO), the biggest differences are in cost, yield, and diversification, with QQQ focusing tightly on tech-driven growth and VOO offering broader sector exposure.

Both Invesco QQQ Trust and Vanguard S&P 500 ETF track large-cap U.S. stocks, but with distinct approaches: QQQ targets the NASDAQ-100, leaning heavily on technology, while VOO tracks the S&P 500 for a more representative slice of the U.S. equity market. This comparison highlights their cost, performance, and risk profiles to help long-term investors decide which may better fit their goals.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.

VOO is markedly more affordable, charging just 0.03% in annual expenses versus 0.20% for QQQ, and it also delivers a higher dividend yield, which may appeal to cost-conscious or income-focused investors.

Performance & risk comparison

QQQ has delivered stronger growth over five years, turning $1,000 into $2,081, but this outperformance comes with higher volatility—its maximum drawdown was notably deeper than VOO’s over the same period.

What's inside

Vanguard S&P 500 ETF holds 505 companies and aims to mirror the S&P 500 Index, providing exposure across sectors: Technology (36%), Financial Services (13%), and Consumer Cyclical (11%). Its largest positions include NVIDIA, Apple, and Microsoft, each accounting for under 0.1% of the fund. With 15.2 years of history, VOO offers investors a broad, diversified portfolio of U.S. large caps.

In contrast, QQQ concentrates on the NASDAQ-100, with a significant tilt toward Technology (54%), followed by Communication Services (17%) and Consumer Cyclical (13%). Its top holdings—NVIDIA, Apple, and Microsoft—make up a larger share by weight compared to VOO. QQQ’s narrower sector focus and smaller roster of 101 stocks result in a more growth-oriented, tech-heavy profile.

For more guidance on ETF investing, check out the full guide at this link.

Foolish take

Both of these exchange traded funds (ETFs) can play a role in an investor's portfolio. With much broader diversification, though, Vanguard's VOO might be the better one to choose early in one's investing life.

Being overweighted in one sector can be hard to stomach, especially for a young investor. When the inevitable market downturn comes, seeing one's nest egg sink by more than one-third can be difficult. It can lead to poor decisions, including panic selling at the bottom that can hurt lifetime returns.

Owning the more diversified Vanguard fund doesn't keep one out of the technology sector, either. In fact, nine of the top 10 holdings of these two funds are the same. The bigger difference is that the top 10 holdings with Invesco's QQQ make up more than 50% of its total net assets. That compares to just 40% for VOO.

The QQQ would be a good supplement to the more broadly diversified Vanguard fund. For investors looking for more weight in tech stocks, it makes a fine choice. When starting out, though, creating a more diversified portfolio makes good sense.

Glossary

Expense ratio: The annual fee, as a percentage of assets, that a fund charges to cover operating costs.
Dividend yield: The annual dividends paid by a fund, expressed as a percentage of its current price.
Beta: A measure of a fund's volatility compared to the overall market; higher than 1 means more volatile.
AUM (Assets Under Management): The total market value of assets a fund manages on behalf of investors.
Max drawdown: The largest percentage drop from a fund's peak value to its lowest point over a specific period.
NASDAQ-100: An index of the 100 largest non-financial companies listed on the NASDAQ stock exchange.
S&P 500: A stock market index tracking 500 of the largest publicly traded U.S. companies.
Sector diversification: The spread of investments across different industry sectors to reduce risk.
Growth-oriented: Focused on companies or funds expected to grow faster than the overall market.
Total return: The investment's price change plus all dividends and distributions, assuming those payouts are reinvested.
Drawdown: The decline in value from a fund's highest point to its lowest before recovering.

Howard Smith has positions in Apple, Microsoft, and Nvidia and has the following options: short February 2026 $170 calls on Nvidia. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.