Is the Invesco QQQ ETF a Millionaire Maker?

There’s a misconception that investors must make big bets on individual stocks to be successful in the stock market. However, numerous types of investments, including exchange-traded funds (ETFs), can create life-changing investment returns. The big question is: How fast are you trying to get there?

Sure, those who want to become millionaires seemingly overnight will have to take on huge risks that are unlikely to pay off. Trying to get rich fast is almost always a bad strategy.

However, if you have some patience, the Invesco QQQ ETF (QQQ -0.44%) could be the best option for generating significant returns without gambling your hard-earned money away.

Here is why this exchange-traded fund is the millionaire maker you’ve been looking for.

Proven results and how the Invesco QQQ does it

Exchange-traded funds are groups of stocks that trade under one ticker symbol. Often, ETFs follow a market index or investing style. The Invesco QQQ follows the Nasdaq-100, a group of large-cap growth stocks, primarily in the technology sector. Big technology companies have dominated the stock market for over a decade thanks to growth trends such as cloud computing and digital advertising. The best-known market leaders, known as the “Magnificent Seven” stocks, make up over 42% of the Invesco QQQ today. It has produced extraordinary investment returns over the past decade:

Data by YCharts.

With a 700% total return in just one decade, the millionaire-making question is whether this performance will continue. There are reasons to think it can. Today, technology leaders dominate the modern economy. Think powerhouse companies like Amazon, Meta, Apple, Alphabet, Microsoft, Tesla, and Nvidia. They lead enormous and growing end markets, including artificial intelligence (AI), cloud computing, digital advertising, self-driving vehicles, and renewable energy.

The Nasdaq-100 and Invesco QQQ contain dozens of other stocks, but this small handful has become the foundation. Analysts estimate that almost every Magnificent Seven stock will continue growing earnings at a double-digit rate over the long term. These major contributors to the Invesco QQQ could continue lifting the ETF to new heights if that happens.

There is a catch

Risk and reward go hand in hand. While the companies in the Invesco QQQ are primarily large-cap stocks with little bankruptcy risk, high-growth technology stocks are prone to boom-and-bust market cycles that can create huge drawdowns. Just look at how far the Invesco QQQ has occasionally fallen from its highs:

Data by YCharts.

Many investors may struggle to emotionally endure a 30%, 60%, or 75% decline in their investment. That’s why portfolio diversification is so important. Sure, the Invesco QQQ is diversified across over 100 stocks, but investors should also consider how much risk and volatility their overall portfolio might have. Despite the Invesco QQQ’s long-term investment returns, investing all your money in it wouldn’t be wise.

Is the Invesco QQQ a millionaire-maker today?

The big technology companies that comprise over 40% of the Invesco QQQ continue to enjoy multi-decade growth opportunities. The technology cycle can sometimes be volatile, but the long-term direction seems to be up. So yes, Invesco QQQ is a potential millionaire-making investment.

That said, the Magnificent Seven has already enjoyed a remarkable two-year run that raises questions about whether technology stocks are once again in a bubble. Admittedly, nobody knows when the next market crash will happen or how bad it will be, so focus on the long term instead.

Consider a responsible investment strategy that includes portfolio diversity and dollar-cost averaging. Buy slowly and regularly, and add savings if you can. That way, you can enjoy long-term growth while managing your risk and perhaps even have some extra cash handy if a market downturn does occur.