TQQQ vs. QQQ: What Are the Key Differences?

Article Summary:

TQQQ and QQQ are both exchange-traded funds (ETFs) that track the same stock market index, but that’s pretty much where the similarities end. If you’re a more conservative buyer who prefers a long-term investment, you might want to think about the QQQ ETF. If you prefer the thrill of day trading and the chances of big gains, consider the leveraged ETF TQQQ.

When determining your investment strategy, you have to ask yourself: Am I in it for the long haul with a nicely diversified investment portfolio, or am I more of a risk-taking day trader hoping for the big score? Maybe you’re a little of both. Either way, you’ll have to consider your individual strategy before investing in one of these Nasdaq 100 index-based ETFs.

Both TQQQ and QQQ track the Nasdaq 100 index, which tracks the 100 largest domestic and international companies based on market capitalization with a strong emphasis on the tech stocks. This describes an index that is high-performing but also volatile. The index they track is one of the few similarities these two ETFs share. Let’s explore the differences, so that you can decide for yourself.

TQQQ vs. QQQ

The Invesco QQQ Trust (QQQ) is a traditional type of exchange-traded fund. ETFs are a grouped portfolio of assets, much like mutual funds, but instead are actively traded just like individual stocks. It tracks the performance of the Nasdaq 100 index and attempts to match the same returns — when the index rises, QQQ rises with it.

The Proshares Ultrapro QQQ, ticker symbol TQQQ, is kind of like a turbo-charged ETF. Instead of a more traditional exchange-traded fund like QQQ, it’s a leveraged ETF that tracks the same index but aims for three times the returns in the same time period.

With that in mind, both of these ETFs have the potential to bring in great returns. If you’re unsure where to get started, you may want to find a broker that specializes in one of these ETFs.

What is an ETF?

An ETF is an exchange-traded fund, which means exactly what it sounds like. It is a fund that you can trade on exchanges and that usually tracks a specific index, such as the S&P 500, or in the case of TQQQ and QQQ the Nasdaq 100. When you buy an ETF, you are getting a bundle of assets that you can trade at any time during market hours.

TQQQ

As stated, TQQQ is a leveraged ETF, which means it uses financial derivatives and debt instruments as leverage to amplify the returns of an underlying index. In this case, that’s the Nasdaq 100 index. To compare, typical ETFs try to match the returns of the underlying index over time, whereas leveraged ETFs attempt to double or triple the daily returns of the index.

TQQQ is a triple leveraged ETF, meaning it strives for three times the daily returns. This means if the index is up 1%, your returns are up 3%. Of course, the reverse is also true—if the index is down 1%, you lose 3%. Those are some pretty heavy swings, which is why many long-term investors tend to steer clear of leveraged ETFs.

Leveraged funds also have a different style of holdings than more typical ETFs. While QQQ owns actual shares of the stocks in the index, TQQQ owns very little of the underlying securities. Instead, it uses derivatives, known as swaps, to boost its returns based on how the index performs.

TQQQ, like other leveraged ETFs, costs a bit more to own than average index funds, with an expense ratio of 0.95% — that’s $95 for each $10,000 owned. While that’s not super high by leveraged ETF standards, the fees can still add up.

Future performance of TQQQ

Any investor worth their salt will tell you that you can’t predict future results based on past performance—certainly not in the stock market.

This is a shame because overall TQQQ has been an impressive performer with average annual total returns of nearly 50% since its inception in 2010 through March 2022. That means if you invested $10,000 into TQQQ in 2010, you’d be sitting on a little more than $1.2 million at the end of 2021. However, as of April 2022, this would have dropped to $513,908.

However, it’s important to keep in mind that aside from some blips along the way, TQQQ has only existed during bull markets. It’s nearly impossible to predict how it might perform during a true bear market.

Pros and cons of TQQQ

It’s safe to say that most investments require some careful thought beforehand, and this is especially true of leveraged ETFs. Be sure to consider these benefits and risks before investing in TQQQ.

WEIGH THE RISKS AND BENEFITS

Here is a list of the benefits and drawbacks to consider.

Pros
  • Big potential earnings. The ETF is triple-leveraged, so you have the potential for some huge returns if the market plays out in your favor.
  • Great history. As we mentioned, TQQQ has an impressive past performance since 2010, which may inspire some confidence that it will continue to perform this way.
  • Limit orders. You can place limit orders to sell at a specific price, which can help to mitigate losses.
Cons
  • Big potential losses. Because the ETF is triple-leveraged, you also have the potential for big losses if the market dips.
  • High expense ratio. Though some ETFs have low expense ratios, TQQQ has a higher expense ratio at 0.95%.
  • Volatile. TQQQ is a very volatile investment, which may make it only good for short-term holds. This makes it mostly undesirable for beginning or risk-averse investors.

QQQ

The Invesco QQQ Trust is a popular ETF and the fifth largest traded in the stock market today, with net assets of $169.5 billion (as of May 2022). It’s considered a more viable strategy for investors than TQQQ because it only seeks to match the index’s returns rather than triple them. It also has a significantly lower expense ratio of 0.20%, as compared to TQQQ at 0.95%.

Its holdings include tech giants such as Apple, Microsoft, and Google. In fact, more than 50% of its basket holdings are in technology companies, followed by consumer discretionary and communications companies.

The overall emphasis on technology companies and less diversity means that investors should expect it to be a higher volatility ETF. This is especially true when you compare QQQ to ETFs on a more broad index like the S&P 500.

Although it’s only shown 9.5% total growth since its inception in 1999, it’s still considered a pretty aggressive-growth index fund, with a 10-year average annual return of about 19.46%.

Pros and cons of QQQ

Similar to TQQQ, it’s important to consider the drawbacks and benefits of QQQ before investing. Keep in mind that your individual trading style will greatly impact what ETF you prefer.

WEIGH THE RISKS AND BENEFITS

Here is a list of the benefits and drawbacks to consider.

Pros
  • Actively traded. It’s a very actively traded and liquid security and provides investors with broad, lower-cost access to the Nasdaq 100 index of high-performing internet and tech stocks like Apple, Google, Tesla, and Microsoft.
  • Lower expense ratio. Compared to TQQQ, QQQ boasts a much more affordable expense ratio of only 0.20%.
  • Potential for high earnings. Its long-term past performance has outpaced similar S&P 500 ETFs in the 10–15-year range.
Cons
  • Less diverse. Though it focuses on high-performing stocks, QQQ contains less diverse holdings than ETFs that track the S&P 500 index, with a highly-weighted emphasis on the tech sector.
  • Even more volatile. Because of its heavy concentration of tech and communication stocks, QQQ can be even more volatile than TQQQ.

TQQQ vs. QQQ: Which should I choose?

Since each investor has their own trading style, different investments work better for different investors. Given the fact that TQQQ and QQQ differ so greatly, you’ll need to consider all the pros and cons of both ETFs before making your decision.

QQQ will be a more stable investment with a lower expense ratio. If you’re a more conservative investor seeking long-term growth over a quick buck, then buying into QQQ can be a welcome addition to a diverse portfolio, giving you nice exposure to the tech-heavy Nasdaq.

On the other hand, if you think the Nasdaq is headed for a surge and you’re not averse to a little risk, you might want to jump on TQQQ for a (short) ride. It’s performed very well since its inception (although not very recently), so it might be worth a try. Just remember, those big gains can quickly turn into large losses.

FeatureQQQTQQQ
Type of SecurityETFLeveraged ETF
CompositionSmall blendLarge blend
IndexNasdaq 100Nasdaq 100
Net Assets$169.5 billion$13.3 billion
Expense Ratio0.20%0.95%
Management StylePassivePassive
Dividend Yield0.55%N/A
10-Year Return19.46%46.90%

Pro Tip

Conventional wisdom says leveraged ETFs are best left to gamblers with deep pockets who think they can predict a spike in share prices. That being said, the fairly recent past shows solid performance by TQQQ.

FAQs

What are the tax implications of TQQQ vs. QQQ?

If you make money with TQQQ, you’ll probably only pay capital gains taxes because it’s used with more of a short-term hold strategy. QQQ pays dividends in quarterly distributions, which are taxable. However, TQQQ does occasionally pay dividends as well, so you will be taxed on those too if you’re holding the ETF at the time.

What is QQQQ?

The ticker symbol for QQQ was, for a time, known as QQQQ because the Nasdaq used to require listed securities to have four-letter symbols. In 2004, the rule was changed and QQQ (or QQQQ) was allowed to go back to its original symbol of QQQ.

How long should you hold TQQQ?

If you’re asking for investment advice, holding TQQQ long-term isn’t really recommended by most financial experts. Because it’s a leveraged ETF, with such big gains and losses, it’s a high-risk investment and is more appropriate for day trading, or to hold for no more than a few days.

Is TQQQ safe?

Safe can be a relative term, but the short answer is: maybe not. TQQQ is not considered a “safe” investment because of the higher short-term volatility and the widely held (but debatable) theory of volatility decay with leveraged funds.

It’s more of a speculative instrument, with the potential for very large gains and, conversely, big losses. Many long-term investors tend to stay away from leveraged ETFs, whereas those with a higher risk tolerance might find them thrilling.

Key Takeaways

  • TQQQ and QQQ are both ETFs that track the Nasdaq 100 index.
  • QQQ is a more typical ETF whose goal is to match the performance of the Nasdaq over time.
  • TQQQ is a leveraged ETF, meaning it aims to triple the daily returns of the Nasdaq.
  • QQQ is better suited to long-term investors whereas TQQQ is more for short holds and day traders.
View Article Sources
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  4. Beginner’s Guide to Investing — SuperMoney
  5. 24 Stock Trading Secrets From The Most Successful Investors — SuperMoney
  6. How to Invest in Index Funds — SuperMoney
  7. SPX vs. SPY: Differences Explained — SuperMoney
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