Which ETF Ought to Be the Bedrock of Your Portfolio?

In most years (particularly up years), the Nasdaq 100 stood that a lot taller than the S&P 500, thanks partly to beefier positive factors from the tech sector. Invesco’s Q3 word reveals QQQ NAV +8.94% in Q3 2025, forward of the S&P 500’s +8.12%. However simply because the Nasdaq 100 tends to outrun the market on the best way up does not imply it’s going to accomplish that transferring ahead, particularly if tech goes from growth to bust out of the blue.

On this piece, we’ll decide whether or not it is a greater thought to look to a tech-heavier, gain-heavier (a minimum of of late) index within the Invesco QQQ Belief (NASDAQ:QQQ), which follows the Nasdaq 100, or the Vanguard Whole Inventory Market Index ETF (NYSEARCA:VTI), a preferred, broader various to the S&P 500.

This publish was up to date on October 27, 2025 to make clear the QQQ price minimize pending proposal, in addition to to offer up-to-date valuation numbers.

Certainly, there’s probably a heck of much more synthetic intelligence (AI) hype priced into the tech-heavy QQQ relative to the S&P 500 or the broader whole market index funds on the market. And whereas the next a number of in your common holding may very well be value paying if mega-cap tech’s hefty AI-related capex accompanies a stable return to funding within the close to future, traders should not neglect in addition they stand to revenue from the AI revolution from broader market publicity.

In some ways, the standard corporations outdoors of tech are placing their tech caps on. Certainly, lots of them could have employed quite a lot of tech expertise lately, given all there may be to realize from integrating AI into one’s enterprise. In any case, I discover it probably that many such non-tech corporations do not but have the AI premium connected to them at present ranges, making them potential beneficiaries of a number of enlargement ought to their AI methods translate into some bigger-than-expected positive factors within the close to time period.

On the time of writing, the QQQ is round 30% pricier, presently boasting a price-to-earnings (P/E) a number of of round 34.6 instances, far greater than the VTI or most different ETFs which have important overlap with the S&P 500. In the meantime, the VTI goes for a extra palatable however nonetheless considerably costly 28 instances P/E.

The upper a number of on QQQ may imply extra ache (keep in mind how unkind the 2022 sell-off was to the QQQ vs. the VTI?) ought to traders change into much less keen to pay a premium for tech and AI publicity, particularly if the following DeepSeek—a strong low-cost AI mannequin—finally ends up coming from out of left discipline, stunning us all and inflicting an additional shock to the AI gainers which have pulled the market greater up to now two years.

Whereas I do discover the QQQ to be a stable basket of modern corporations that may do effectively within the subsequent decade as they seize alternatives in AI and whichever expertise follows (to many, it is quantum computing). That mentioned, I do not assume the QQQ ought to type the bedrock of 1’s portfolio. As a substitute, I view it as a pleasant complement to a extra broad-based and diversified portfolio.

The Vanguard Whole Inventory Market is probably going a greater wager for traders who wish to do effectively over time however don’t wish to stand instantly in hurt’s approach ought to a bursting of the AI bubble occur sooner or later. DeepWater Asset Administration’s Gene Munster is a bull on the AI growth, however even he acknowledges that it will most likely finish in a bubble that would burst in as little as two to 3 years.

Proper now, he is 2027 because the yr AI shares take a giant spill. And when the time comes, the VTI could not really feel as a lot of an affect. Nevertheless, shares may really feel among the shockwaves, given the index’s modest however nonetheless outstanding publicity to tech shares, particularly these with ample AI spend.

In brief, traders should not anticipate the QQQ and different Nasdaq 100 ETFs to beat the S&P 500 ceaselessly. If historical past repeats itself and the AI commerce ends the best way the web growth did, maybe extra cautious traders can be higher off shopping for and holding the VTI. Personally, I view DeepSeek’s AI breakthrough as an indication that tech corporations should pivot or run the chance of getting Wall Road flip its backs on them sooner or later down the road.

I might say the VTI is the higher possibility for the bedrock of most investor portfolios. It’s the extra fashionable, extra diversified (hundreds of shares), and cheaper (0.03% expense ratio vs. 0.20% for the QQQ- nevertheless, that is proposed to drop to 0.18% pending shareholder approval late October 2025). That mentioned, I am not towards sprinkling some QQQ in it as effectively for the youthful traders on the market who’re keen to pay a premium for a greater seat to the AI present. Maybe a really perfect combo can be a VTI-heavy fund with a 10-20% allocation to the QQQ.