Related: How to invest in the Nasdaq
TQQQ vs. QQQ
The best choice for your portfolio depends on your risk tolerance.
While these exchange-traded funds (ETFs) boast similar names and track the same index, the QQQ is better suited to passive investors, while day traders and otherwise active investors may be better off trading the TQQQ. But the best choice for you will ultimately depend on your risk tolerance, investment goals and trading strategy.
TQQQ vs. QQQ at a glance
| Feature | TQQQ | QQQ |
|---|---|---|
| Morningstar risk score | 249 – Extreme | 86 – Very aggressive |
| Management expense ratio | 0.82% | 0.20% |
| Number of holdings | 110 | 102 |
| Assets under management | 31.06 billion USD | 411.17 billion USD |
| Year-to-date (YTD) performance | 44.41% | 23.27% |
| 1-year performance | 35.22% | 21.24% |
| 3-year performance | 78.34% | 31.38% |
| 5-year performance | 23.89% | 16.43% |
| 10-year performance | 37.41% | 19.57% |
| Implied volatility | 50.5% | 18.74% |
| Distribution frequency | Quarterly | Quarterly |
| Dividend yield | 0.70% | 0.45% |
| Average trading volume | 114, 619, 019 | 57,970,593 |
What is the TQQQ?
The ProShares UltraPro QQQ (TQQQ) is a leveraged ETF that aims to deliver three times the daily returns of the Nasdaq-100 index. It does this using financial derivatives and debt, rather than holding the underlying stocks directly. This makes the TQQQ more complex and higher-risk than standard ETFs.
Its leverage resets daily, meaning the fund adjusts its exposure each day to maintain 3x leverage for the next day’s move. Because of this daily reset, returns can deviate from 3x the index over time, making the TQQQ primarily suitable for short-term or intraday trading.
What is the QQQ?
The Invesco Trust (QQQ) is a traditional ETF that also tracks the Nasdaq-100 index. Unlike the TQQQ, the QQQ holds the stocks directly and doesn’t use leverage, making it simpler and more cost-efficient.
The QQQ has a low expense ratio of 0.20% and high liquidity, which makes buying and selling shares straightforward. It’s good for long-term, buy-and-hold investing while providing exposure to large companies in sectors like tech, consumer discretionary, communication services and healthcare.
Related: Technology ETFs
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Is the TQQQ a good investment?
By its very nature, the TQQQ is a riskier investment than the QQQ. It aims to amplify the daily returns of the Nasdaq-100 by a factor of three. This means that if the Nasdaq does well, TQQQ stock does really well. And if the Nasdaq drops? Well, the TQQQ plummets by 3X as much.
Because of its volatility, the TQQQ is best used as an intraday investment, which means you buy and sell the fund over the course of a single trading day. This often makes the TQQQ a strong fit for active traders with a high degree of risk tolerance.
Another drawback to consider before you invest is the TQQQ’s expense ratio. Most ETF expense ratios sit at 0.20% or below — like the QQQ. But the TQQQ’s expense ratio is 0.82%. You’ll pay more to invest in this fund, and while it may potentially magnify your gains, it may also widen your losses.
TQQQ performance
The past performance of an ETF is no guarantee of what the fund will do in the future. But tracking the TQQQ may help you compare it to other funds.
Pros and cons of investing in the TQQQ
- 3x daily returns potential
- High liquidity
- Nasdaq exposure
- Useful for short-term trading
- 3x daily losses possible
- High volatility
- Higher fees
- Complex strategy
- Concentrated on the tech sector
Is the QQQ a good investment?
The QQQ is considered an aggressive growth fund and is prone to higher short-term volatility than larger indices like the S&P 500. That said, it’s still considered a viable buy-and-hold investment that has a history of compensating its investors for taking on increased risk with above-average returns.
Historically, QQQ stock has outperformed the S&P 500, with 10- and 15-year returns of 19.57% and 18.74%, beating out the S&P’s 14.74% and 14.11% returns over the same period.
The QQQ is a way to incorporate tech stocks into your portfolio while also adding exposure to large-cap industrial and healthcare companies. You don’t need to hand-pick or monitor individual stocks — the index does that for you. And the QQQ is typically a more stable investment than the TQQQ, which means it’s suitable to be held long-term.
That said, the QQQ is limited in its scope. Unlike the S&P 500, it only tracks 102 stocks, nearly half of which are tech stocks. Should anything happen to the tech sector, your investment in the QQQ will be put at risk.
QQQ performance
How QQQ stock has performed in the past is no guarantee of future performance. But tracking this fund can help you see how it compares to other ETFs.
Pros and cons of investing in the QQQ
- Nasdaq exposure
- Lower volatility than the TQQQ
- Low expense ratio
- Suitable for long-term investing
- High liquidity
- Moderate growth
- Concentrated on the tech sector
- Less short-term profit potential
- No leverage
How to choose between the TQQQ and the QQQ
Before you add either of these funds to your portfolio, consider the following:
- Risk tolerance. The TQQQ is exponentially riskier than the QQQ and is only suitable for investors with a high degree of risk tolerance.
- Timeline. The QQQ may work as either a short- or long-term investment, but the TQQQ is typically an intraday trade.
- Amount of capital. Since the TQQQ uses leverage to amplify returns, you could earn as much or more than a QQQ stock investment with less capital.
- Investing experience. If day trading isn’t a routine part of your investment strategy, it may be prudent to skip out on TQQQ stock.
- Cost. The TQQQ has a higher expense ratio of 0.82%, compared to the QQQ’s 0.20%, which can lower returns.
How are QQQ and TQQQ taxed?
QQQ and TQQQ are U.S.-listed ETFs, so they’re considered foreign investments according to the Canada Revenue Agency (CRA). Both ETFs pay dividends quarterly, and the U.S. Internal Revenue Service (IRS) generally withholds 15% tax before the dividend is paid to you. You can then claim this as a foreign tax credit on your Canadian tax return to avoid being taxed twice on the same income.
If you sell either ETF, 50% of any capital gain is included in your taxable income and taxed at your marginal rate.
How are QQQ and TQQ taxed in a registered account?
If you hold your U.S.-listed ETFs in a registered account, the rules change slightly. In an RRSP or RRIF, dividends from U.S.-listed ETFs are typically exempt from the 15% U.S. withholding tax and capital gains are tax deferred until withdrawal.
In accounts like a TFSA, RESP or FHSA, the IRS still withholds 15% on dividends, which cannot be recovered through a foreign tax credit, although all capital gains and withdrawals remain tax-free.
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To invest in either of these ETFs, you’ll need a brokerage account. Review your options below.
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Bottom line
Both the QQQ and TQQQ track the Nasdaq-100 and depend on its performance for returns. But before you add either fund to your portfolio, consider your time horizons and risk tolerance. The QQQ is a simpler, long-term growth option with lower fees and moderate risk. The TQQQ is a leveraged, high-risk strategy designed for experienced traders seeking short-term exposure.
When you’re ready to invest, check out the 10 best trading platforms and apps in Canada to find the right one for you.
Frequently asked questions
Sources
Important information: Powered by Finder.com. This information is general in nature and is no substitute for professional advice. It does not take into account your personal situation. This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for most investors. You do not own or have any interest in the underlying asset. Capital is at risk, including the risk of losing more than the amount originally put in, market volatility and liquidity risks. Past performance is no guarantee of future results. Tax on profits may apply. Consider the Product Disclosure Statement and Target Market Determination for the product on the provider's website. Consider your own circumstances, including whether you can afford to take the high risk of losing your money and possess the relevant experience and knowledge. We recommend that you obtain independent advice from a suitably licensed financial advisor before making any trades.
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