ETFs are one of the best investing instruments ever created. They provide instant, liquid access to hundreds of quality companies usually at a very low minimum investment amount, and usually almost-zero fees. For casual investors with smaller portfolios who want to make a small number of investing decisions per year, while still spreading their risk across several dozen or hundreds of companies, ETFs are almost always the right choice.

Today I’ll be discussing Invesco QQQ Trust (NASDAQ: QQQ), which is one of the most popular technology ETFs, even though it doesn’t strictly invest in technology companies. And I’ll compare it to simply investing in one of the most popular technology companies, NVIDIA Corporation (NASDAQ: NVDA).

QQQ’s Top Holdings

ETFs are most-always made up of publicly traded companies, and QQQ is no exception. It tracks the Nasdaq 100 Index, which is the 100 largest companies listed on the Nasdaq. Here are its top 10 holdings as of today:

• Microsoft Corporation (NASDAQ: MSFT)
• Apple Inc. (NASDAQ: AAPL)
• Nvidia Corporation (NASDAQ: NVDA)
• Amazon.com, Inc. (NASDAQ: AMZN)
• Meta Platforms, Inc. (NASDAQ: META)
• Broadcom Inc. (NASDAQ: AVGO)
• Alphabet Inc. (NASDAQ: GOOGL)
• Alphabet Inc. (NASDAQ: GOOG)
• Costco Wholesale Corporation (NASDAQ: COST)
• Tesla, Inc. (NASDAQ: TSLA)

In might surprise some investors to learn that these 10 holdings represent just about 50% of QQQ’s market value, which is to say for every dollar you invest in QQQ, around 50 cents of it are being invested in 10 companies. Investors who buy QQQ hoping for diversification might not realize how concentrated their investment truly is.

Another common surprise is company #9 in the list. Is Costco building datacenters now? It’s Costco, so I wouldn’t put it past them! But as of today they are not. You see, they are one of the largest companies listed on the Nasdaq, so they’re in the ETF.

While many investors regard QQQ as THE tech ETF, it simply is not. When you buy it, you’re getting access to Microsoft, Apple & Nvidia, but also Walgreens, Pepsico, Marriot and many others.

Nvidia’s Top Holdings

This heading is a joke, of course. If you buy Nvidia, you are getting 100% pure Nvidia. Whereas when you buy QQQ, about 7.5% of your investment dollar goes into Nvidia. Nvidia is one of the best performing stock stories of the past 10 years and is at the forefront of the artificial intelligence (AI) revolution.

But here’s what’s important: If you review the list of top holdings from QQQ (outside of Costco) all of them have an AI story, and with each related announcement they make, their market caps move by billions. We are living in an AI-driven stock market right now, and whether you invest in Nvidia or QQQ, those forces are going to impact your returns in a meaningful way, regardless of what Costco does.

So….Should You Buy QQQ or Nvidia?

My personal choice is to simply own Nvidia directly, and here’s why:

1. I happen to own 9 of QQQ’s top 10 holdings already, including both share classes of Google. In your case, review your personal portfolio to see how exposed you already are to the top holdings of QQQ before buying it. You may not get the diversification you expect if you already own tech stocks. You can view the complete holdings of QQQ here.
2. I don’t want to own Pepsi or Dr Pepper. No offense to either, but there’s nothing about their stories that appeals to me. If you review the complete holdings, you can see if they appeal to you, but I might suggest if you do want a “tech companies plus a few others” strategy, you might just look at an S&P 500 tracking ETF such as SPY.
3. I have a higher appetite for risk. While I wouldn’t love it, I’m ok with Nvidia dropping 20% in a week. If the thought of that terrifies you, spread your risk out by using a vehicle like QQQ or even VGT, which would give you a more pureplay tech investment compared to QQQ.

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