Is the Invesco QQQ ETF a millionaire maker?

There is a misconception that investors need to make big bets on individual stocks to be successful in the stock market. However, many types of investments, including exchange-traded funds (ETFs), can create life-changing investment returns. The big question is: how fast are you trying to get there?

Sure, those who want to become millionaires seemingly overnight will have to take huge risks that probably won’t pay off. Trying to get rich quick is almost always a bad strategy.

However, if you have a little patience, Invesco QQQ ETF (QQQ -0.44%) it could be the best option to generate significant profits without gambling your hard earned money.

Here’s why this exchange traded fund is the millionaire generator you’ve been looking for.

Proven results and how Invesco QQQ does

Exchange-traded funds are groups of stocks that trade under a ticker symbol. ETFs often follow a market index or investment style. Invesco QQQ follows Nasdaq-100a group of large-cap growth stocks, primarily in the technology sector. Big tech companies have dominated the stock market for over a decade thanks to growth trends like cloud computing and digital advertising. The best-known market leaders, known as the “Magnificent Seven” stocks, represent more than 42% of Invesco’s QQQ today. It has produced extraordinary returns on investment over the past decade:

Data by YCharts.

With a total return of 700% in just a decade, the millionaire-making question is whether this performance will continue. There are reasons to believe that it can. Today, technology leaders dominate the modern economy. Think of powerful companies like Amazon, Meta, Apple, Alphabet, Microsoft, adzeand Nvidia. They drive enormous and growing end markets including artificial intelligence (AI), cloud computing, digital advertising, self-driving vehicles and renewable energy.

The Nasdaq-100 and Invesco QQQ contain dozens of other stocks, but this small handful has become the foundation. Analysts expect almost every Magnificent Seven stock to continue growing earnings at a double-digit rate over the long term. These major contributors to Invesco QQQ could continue to lift the ETF to new highs if that happens.

There is a catch

Risk and reward go hand in hand. While the companies in the Invesco QQQ are primarily large-cap stocks with little risk of bankruptcy, high-growth technology stocks are prone to boom and bust market cycles that can create huge draws. Just look at how far the Invesco QQQ has occasionally fallen from its highs:

Data by YCharts.

Many investors may struggle to emotionally handle a 30%, 60% or 75% decline in their investment. That’s why portfolio diversification is so important. Sure, the Invesco QQQ is diversified across more than 100 stocks, but investors should also consider how much risk and volatility their overall portfolio might have. Despite Invesco QQQ’s long-term investment returns, investing all your money in it would be unwise.

Is Invesco QQQ a millionaire today?

The large technology companies that comprise more than 40% of the Invesco QQQ continue to enjoy multi-decade growth opportunities. The tech cycle can be volatile at times, but the long-term direction seems to be up. So yes, Invesco QQQ is a potential millionaire investment.

That said, the Magnificent Seven has already enjoyed a remarkable two-year run that raises questions about whether tech stocks are once again in a bubble. Of course, no one knows when the next market crash will happen or how bad it will be, so focus on the long term.

Consider a responsible investment strategy that includes portfolio diversity and dollar cost averaging. Buy slowly and regularly and add savings if you can. That way, you can enjoy long-term growth while managing your risk, and maybe even have some extra cash on hand if the market drops.