QQQ vs. VTI: Which ETF to Choose?

There is no one-size-fits-all answer when it comes to choosing between different types of investments. Different investors have different needs and preferences. This means that they will have different opinions on the best type of investment. 

I understand these preferences, and that’s why my curiosity pushed me to compare these two high-performing exchange-traded funds, QQQ, and VTI.

Invesco QQQ Trust (QQQ) and Vanguard Total Stock Market ETF (VTI) have a stable past performance. QQQ is famous for the diversification it provides, and VTI is renowned for its low expense ratio. There are a few other distinctions in them as well.

For instance, they are managed by distinct organizations and track separate indexes. The QQQ Trust, for example, gives investors access to a portfolio that is comparable to the Nasdaq 100 index.

The VTI, on the other hand, tracks the performance of the CRSP US Total Market Index.

Both have their benefits and some disadvantages over one another. But one thing is sure, and both can be ideal for a varied variety of users.

So, let’s now begin the comparison and take a look at the offerings they provide an investor.

Key Takeaways

• Invesco manages QQQ, and Vanguard manages VTI.
• QQQ tracks the Nasdaq 100 index.
• VTI tracks the CRSP US Total Market Index.
• QQQ has a higher expense ratio of 0.20% compared to 0.03% of VTI.
• The QQQ fund has 99% percent of its market cap invested in large-cap firms.
• Whereas VTI invests 76.4% of its market cap in large companies, 17.3% in Midcap, and 6.3% in small-cap companies.

QQQ vs VTI – Are There Any Differences?

Yes, there are quite a few differences between these two ETFs.

Differences

First and foremost, the manner in which they track indexes is different. The QQQ Trust tracks the performance of the Nasdaq 100 index, whereas the Vanguard Total Stock Market ETF tracks the CRSP US Total Market Index.

Second, their expense ratios differ. The QQQ Trust has an expense ratio of 0.20%, much higher than the Vanguard Total Stock Market ETFs expense ratio of 0.03%.

Third, their market capitalization differs. The QQQ Trust has 99.93% percent of its market capitalization invested in large-cap firms. At the same time, the Vanguard Total Stock Market ETF invests 87.52% of its market capitalization in large companies, 9.57% in Midcap, and 2.42% in small-cap companies.

Fourth, the difference is in terms of its holdings. VTI is way ahead when it comes to the number of holdings. VTI holds 4099 companies, whereas QQQ holds only 103. Therefore, the diversification prospect of long-term investment stability is better in VTI.

Similarities

• Both funds offer a passive investment strategy.
• They are both low-cost funds.
• The majority of their holdings are in large companies.
• They both offer investors an excellent way to invest in the U.S. stock market.

QQQ vs VTI – Composition

QQQ

A large volume of money goes through the QQQ, one of the most popular ETFs. Its enormous daily trading volume suggests that it is primarily utilized as a short-term trading tool rather than a long-term investment vehicle.

The ETF is designed to track the Nasdaq-100 Index, which contains the stocks of 100 of the largest and most liquid nonfinancial companies listed on the Nasdaq.

VTI

VTI is one of the well-known and widely held ETFs. It is designed to track the CRSP US Total Market Index, a market-cap-weighted index representing approximately 99% of the investable U.S. equity market.

Based on the above-given information, it is evident that there are differences in both ETFs. Significant differences are based on the holdings, the index they follow, holding percentage, total assets, expense ratio, and there is a substantial difference in AUM as well.

Diversification

You can get a better-diversified portfolio with VTI as it holds more stocks in holdings as compared to QQQ. And, market capitalization is less with QQQ as it has $173.28 billion invested in large-cap companies, whereas Vanguard Total Stock Market ETF invests $267.95 billion in large companies.

So, for an investor who wants to invest for long-term stability, VTI would be the better choice. However, investors looking for short-term profits might find QQQ a more lucrative option.

Holdings

The total number of holdings is also one criterion to judge the diversification prospect. And as mentioned earlier, VTI has the upper hand with 4099 companies in its portfolio. So, it can be said that if you want to invest in a fund that gives you exposure to a large number of stocks, then go for VTI.

Allocations

The asset allocation of both index funds doesn’t have a huge difference. Both the funds invest in major large-cap companies of the U.S.

QQQ vs VTI – What About Their Historical Performance?

The Invesco QQQ Stock and Vanguard Total Stock Market ETF (VTI)  have a long performance history.

Both funds are passively managed, low-cost funds that offer investors a way to invest in the U.S. stock market.

Volatility

When it comes to volatility, QQQ takes the lead. It offers an annualized volatility of 36.64% compared to 23.95% of VTI. It implies that QQQ can offer a much better long-term result as more volatility is something traders prefer.

Returns of both QQQ and VTI

In terms of returns, both QQQ and VTI are pretty good. We can choose any of them without worrying about the returns. QQQ has a year-to-date (YTD) return percentage of 21.39%, considerably higher than the 15.21% of VTI.

Moreover, over a five-year period, QQQ has still outperformed VTI with a return percentage of 27.72% as compared to 17.90%.

Dividend Yield

When it comes to dividend yield, QQQ falls short. It offers a dividend yield of just 0.45%, whereas VTI provides a dividend yield of 1.19%. This difference is mainly because QQQ invests in high-growth companies, which typically don’t offer high dividends.

Risk factor

The Nasdaq-100 Index Tracking Stock (QQQ) is considered a high-risk investment option compared to the Vanguard Total Stock Market ETF (VTI). This is because QQQ invests in technology and internet stocks, which are known to be high-risk and volatile.

Conversely, VTI invests in a mix of growth and value stocks, which are considered less risky. The fund has a substantial amount of systematic risk exposure, which is the risk inherent in the entire market.

Tax efficiency

Both VTI and QQQ have a tax-efficient structure. QQQ has an in-kind structure that helps it decrease the risk of capital gains distribution. On the other hand, VTI offers a tax reduction ratio of 0.49%. 

Therefore, both the ETFs’ overall tax efficiency is commendable, and you can choose any of them without a doubt.

QQQ vs VTI – Environment, Social and Governance Ratings (ESG)

The ESG ratings of the ETFs are provided by the MSCI ESG Research LLC’s Fund Metrics. MSCI ESG is registered under the Investment Advisers Act of 1940.

Their ratings are for assessing how each ETF stands against the environmental, social, and governance conditions.

The ratings of VTI and QQQ are shown in the table below –

Now, I think the final question that remains is, which one to buy?

QQQ vs VTI – Can QQQ Stand a Chance Against VTI?

VTI is a great investment option for investors looking for stability and long-term growth. It has a low cost, and it invests in a large number of stocks, which offers investors a high level of diversification.

On the other hand, the Nasdaq-100 Index Tracking Stock (QQQ) is a high-risk investment option that offers investors the opportunity to invest in technology and internet stocks, which are known to be high-growth and volatile.

Moreover, when the markets are bullish, the VTI won’t see great returns compared to QQQ.

Another major point to consider in the VTI vs QQQ comparison is the expense ratio of both exchange-traded funds. QQQ has a significantly higher expense ratio at 0.2%. This might not seem to be a huge difference at first, but it makes a huge deal if you calculate it for the long term.

Final Words

VTI vs QQQ: When choosing between QQQ and VTI, investors need to consider their risk tolerance and investment goals. Both ETFs are great options, but they offer different benefits and drawbacks. It is ultimately up to the investor to decide which fund is the best fit for them. 

However, one thing is sure that both will provide an excellent level of diversification like the VT vs VTI index funds provide.

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