TQQQ vs. VOO: 2x Tech Leverage or S&P 500 Simplicity — What Should You Own

If you’re going to invest your money in the stock market, you need to be willing to accept risk. There’s really no getting around that. On the flipside, if you’re investing for a milestone like retirement, and you don’t put your money into the stock market due to fear, you take on another risk — ending up with a savings shortfall.

Rather than hold stocks individually in your portfolio, you may prefer to invest in ETFs, or exchange-traded funds, which allow you to own a bucket of assets with a single investment. But within the world of ETFs, there are varying levels of risk.

If you’re torn between TQQQ (ProShares UltraPro QQQ) and VOO (Vanguard S&P 500 ETF), you should know that these funds use very different investing strategies and carry different levels of risk. It’s important to be honest with yourself about how much risk you’re willing to take on before choosing one over the other.

What to know about VOO

Vanguard’s S&P 500 ETF is designed to track and match the performance of the S&P 500 index, which is commonly used as a measure of the stock market’s overall performance. There are benefits to putting your money into VOO.

First, there’s instant diversification. There’s also the fact that you’re accepting the general risks of putting money into the stock market, but not necessarily an undue amount of risk.

Also, it’s easy to understand the strategy behind VOO — do as well as the largest publicly traded companies in the market today. And with a low expense ratio of just 0.03%, you’re not talking about hefty investment fees.

What to know about TQQQ

The ProShares UltraPro QQQ is set up to track the Nasdaq-100 index. However, rather than match that index’s performance, its aim is to produce returns that are three times as high as the index’s daily performance.

One key difference between TQQQ and VOO is that TQQQ uses derivatives to amplify its returns. This means that while TQQQ could offer a lot of upside, it could also lose a large amount of value very quickly. Therefore, while both ETFs carry risk, the risk associated with TQQQ is magnified. Also, TQQQ’s expense ratio is considerably higher than VOO’s at 0.97%. However, over time, its return is also considerably higher.

Which ETF is right for you?

As an investor, it’s very important to be honest with yourself about the amount of risk you’re willing to take on. You may like the idea of generating strong returns with TQQQ. But if the idea of outsized losses causes you to lose sleep, then VOO may be a better option.

It’s also worth noting that while VOO is a fantastic long-term investment, TQQQ, by nature, is designed to be more of a short-term investment. Also, while there are people who opt to invest their entire portfolio in VOO, doing the same with TQQQ would not be prudent due to the risk involved.

Ultimately, you’ll need to decide how much risk you’re willing to take on for a larger reward. If you think you can be happy with VOO’s returns, that may be a safer and more suitable investment for you.