Investing

SCHG vs. QQQ: Which Growth ETF Offers More Upside Today?

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Investors face some tough options for the new year, as the S&P 500 pulls back mildly while the growth-, tech- and Mag Seven-heavy Nasdaq 100 takes a slightly harder hit to the chin while Treasury yields climb as prices fall.

Undoubtedly, it can be quite unnerving whenever the stock and bond markets head south at the same time. And though high inflation and big changes to come in government are sure to set an anxious tone to kick off 2025, I do think it’s wise to stay calm and continue as planned with one’s retirement plan.

If one is looking to top up their Roth IRAs for the year, the big question is whether they should take advantage of the pullback in stocks or take a bit of risk off the table with Treasury ETFs that are also seemingly “on sale.”

Undoubtedly, doubling down on the risk by betting on the choppier Nasdaq 100 can make sense, given those seemingly frothy multiples are, on average, 6% cheaper than they were at their peak just a few weeks ago. However, buying the single-digit percentage discount could leave one holding the bag if this is the start of the correction market watchers have been long waiting for.

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Bonds and growth stocks took a steep turn lower. Where’s the value at?

Picking up shares of a long-term U.S. Treasury ETF can make sense for those inclined to derisk rather than add to the risk, especially for those who care more about passive income than appreciation. But where does the real upside lie today? Bonds or stocks?

As always, time will tell. However, in terms of potential, the higher-risk option — the Nasdaq 100 — seems to have more to offer for enduring what could be a rougher ride in the first quarter of 2025.

As always, ask a financial advisor for extra guidance. Though they can’t tell you which security will fare better from here, they can ensure you’re not setting unrealistic expectations, which, in many instances, is a source of great disappointment. In any case, let’s check out two growth-oriented ETFs worth watching on the way down.

Schwab U.S. Large-Cap Growth ETF

The Schwab U.S. Large-Cap Growth ETF (NYSE:SCHG) stands out as one of the smart growth options out there for investors looking to take advantage of market volatility and the recent distaste for growth amid rising rates. The fund tracks the Dow Jones Large-Cap Growth Total Stock Market Index, which has quite a bit of overlap with the more popular Nasdaq 100 that most investors are familiar with.

Perhaps the differences are best understood by looking at the top holdings in the fund. With the SCHG, you’re getting a larger dose of the top three holdings within the Magnificent Seven. Notably, Apple (NASDAQ:AAPL), Nvidia (NASDAQ:NVDA), and Microsoft (NASDAQ:MSFT) each comprise more than 10% of the ETF. Indeed, if you’re a bigger fan of the larger Mag Seven members as they race to be the first to a $4 trillion market cap, the SCHG could be your fund of choice. Around 52% of the fund is allocated to the Mag Seven stocks, a bit more than the Nasdaq 100.

Additionally, you’ll gain exposure to a fair bit of exposure (1-2%) to Dow Jones Industrial Average growth staples such as UnitedHealth Group (NYSE:UNH) and Salesforce (NYSE:CRM), two holdings that the Nasdaq 100 lack.

If you’re keen on having a heavier weighting in the firms with market caps north of $3 trillion or seek a dirt-cheap total expense ratio (SCHG boasts an obscenely low total expense ratio of 0.04%) to play the broader basket of growth plays, the SCHG is a fine option for those seeking to play a rally in big tech in 2025. Personally, I see no issue in putting more eggs in the largest of the mega-cap tech titans, given their enviable economies of scale.

Invesco QQQ Trust

The Invesco QQQ Trust (NASDAQ:QQQ) stands out as the absolute best passive option for betting big on growth these days. Though shares have slipped around 6.2% to start the year, this decline is a relatively modest blip considering the two-year rally that brought the QQQ up almost 80%.

Indeed, a full-blown correction or even a bear market probably wouldn’t be out of the ordinary, given the magnitude of gains in the rearview mirror. That said, new investors who didn’t ride shares on the way up will be taking on the brunt of the damage on the way down. And while I do see ample risk in the QQQ, I also see the potential for more reward versus the S&P 500.

I find it hard to believe that mega-cap tech’s day in the sun is over. Not as AI earnings drivers finally get a chance to get to work for the firms that have already invested so much. If you’re comfortable with having close to 45% of your investment dollars in the Magnificent Seven companies as they stand today, perhaps the QQQ is worth careful consideration.

Just be prepared for a bumpy ride (~1.2 beta, similar to that of the SCHG) should the technology sector flirt with a correction by Spring. It’s hard to buy dips when sentiment shifts so suddenly. As always, consult a financial advisor if you’re unsure about the trajectory you’ll need to ride out in high-tech growth stocks.

The bottom line

You can’t go wrong with either low-cost growth ETF if you’re keen on betting big on big tech. If you want lower fees and more concentration in the Mag Seven (especially the larger half of the cohort), go with the SCHG. However, if you actively track the Nasdaq 100, seek greater liquidity, want slightly less exposure to the Mag Seven (but still more than the S&P 500), and are a bigger fan of the Nasdaq-traded names, the QQQ could be the way to go.

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