What’s the Difference Between QQQ and TQQQ?

QQQ vs TQQQ: Which ETF Is Best for You?

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What’s the difference between QQQ and TQQQ? Although these exchange-traded funds (ETFs) have similar ticker symbols and track the same index, there are significant differences you should know before you invest.

What Is QQQ?

Invesco QQQ Trust, commonly known by its ticker symbol, QQQ, is an ETF that passively tracks the NASDAQ 100 Index. This index consists of the top 100 stocks, ranked by market capitalization, in the NASDAQ Composite Index. The top sectors in QQQ are technology (44%), communications (22%), and consumer discretionary (17%). 

Because of its heavy weighting in technology stocks, QQQ is considered to be an aggressive growth stock fund, which means investors can expect higher short-term volatility compared to a broader stock index, such as the S&P 500. However, based upon its performance history, investors may be rewarded with above-average returns in exchange for taking on the additional risk. 

Pros and Cons of QQQ

Like other ETFs, QQQ can be a smart addition to your portfolio, if it’s used wisely. 

Pros of QQQ

  • Diversification: Although the QQQ portfolio has a high concentration of technology stocks, this ETF invests in 100 stocks representing eight sectors
  • Low cost: ETFs are known for their low expense ratios and QQQ is no exception. Expenses for the fund are just 0.20% or $20 for every $10,000 invested.
  • Potential for high returns: Past performance is no guarantee of future results, but QQQ has historically outperformed the S&P 500 index, especially for long-term returns. The 10- and 15-year returns for QQQ are 19.8% and 12.8% respectively. These returns are significantly higher than those of the S&P 500, which are 15.4% and 9.1%, respectively.  

Cons of QQQ

  • Diversification: Although this is one of the pros for QQQ, it’s also one of the cons. While the fund is more diversified than a technology sector fund, for example, it’s less diversified than the S&P 500 index.
  • Market risk: Because of its heavy concentration in the technology, communications, and consumer discretionary sectors, the price of QQQ will be more volatile (greater fluctuation) compared to a broader stock index, such as the S&P 500.

What Is TQQQ?

ProShares UltaPro QQQ (TQQQ) is a leveraged ETF that seeks daily returns, before fees and expenses, that are three times those of the NASDAQ 100 Index (or the QQQ ETF, which tracks the same index). Therefore, for example, if the QQQ rises in price by 1% in a day, the TQQQ would presumably rise by 3%.

However, investors should keep in mind that the same 3x performance applies to the downside as well. If the QQQ falls in price by 1%, TQQQ could fall by 3%. Therefore, an investment in TQQQ would be a big bet that the NASDAQ 100 (or QQQ) would rise. Investors typically use TQQQ as a speculative tool for a short-term holding period.

Pros and Cons of TQQQ

TQQQ is a unique investment security in that it uses leverage to enhance the performance of the fund. Therefore, investors should give significant consideration to the pros and cons of this ETF prior to investing.

Leverage, in finance, is a term used to generally describe borrowing or the use of debt instruments for financial gain. Examples include a brokerage margin loan or a futures contract.

Pros of TQQQ

  • High performance: Since TQQQ is a 3x leveraged ETF tracking the NASDAQ 100 Index, investors can potentially receive returns that are three times the index, less expenses.
  • Limit orders: Leveraged funds can produce large short-term gains but they can also produce large short-term losses. Since ETFs can be traded during the day like stocks, investors can place limit orders to sell at a specified price, which can limit extreme losses.

Cons of TQQQ

  • Market risk: Leverage funds like TQQQ can see extreme swings in prices, which makes this ETF too risky for investors with low tolerance for volatility.
  • Expenses: Most ETFs have expense ratios below 0.20%, whereas the expenses for TQQQ are 0.95%, or $95 for every $10,000 invested. Higher expenses reduce the total return to the investor more than comparable funds with lower expenses.

In general, QQQ is appropriate for investors wanting a large-cap growth stock ETF that can potentially outperform the S&P 500 in the long run. TQQQ is appropriate for investors with a high tolerance for risk and for short-term investment periods.

For more detail on each ETF, see the Invesco webpage for QQQ and the ProShares webpage for TQQQ.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

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