Investing in a stock with the hopes of it turning into 10 times its value is enticing, and it can lead to investors taking on significant risk for the sake of scoring a huge return. But the danger is that risky investments may not only underperform the market, they could lead to significant losses and destroy your portfolio.
For buy-and-hold investors, there are much safer ways to achieve 10x returns in the markets. Exchange-traded funds (ETFs) offer some terrific diversification, and while they might not double or triple in value in a short timeframe, they can still grow your money significantly over the years.
A top ETF for investors to consider for the long haul is the Invesco QQQ Trust (QQQ -1.33%). Here's why it can be an ideal buy right now, and how it can generate 10x returns.
Historically, the fund has significantly outperformed the broader stock market
When times are good, growth stocks are where you want to invest. That's where the biggest gains often are. Undeniably, when market conditions aren't great, it's usually also growth stocks that can face the deepest declines.
Unfortunately, it's extremely difficult -- if not outright impossible -- to predict which year will be an exceptional one for the market versus a disastrous one. By staying invested for the long run, however, you can put yourself in a position to end up with great returns in the end. The gains from good years will likely more than offset the declines during the bad years. Investing in the stock market has been a solid move for investors, as over the long haul, the S&P 500 has averaged an annual return of around 10%.
To increase the odds of achieving a high return, the Invesco QQQ Trust can make for an even better investment option. It has positions in the top 100 non-financial stocks on the Nasdaq, positioning it for some significant growth. In recent years, with the markets being red hot, it has drastically outperformed the S&P 500.
Generating a 10x return could take a lot longer right now
From the chart above, you can see that the ETF has generated better than 10x returns over the past two decades. But investors should be careful not to make the assumption that it can replicate that type of performance in the future, because with the markets at record levels, there could be lighter returns than usual in the years ahead.
However, if you simply remain invested in a growth-focused fund such as the Invesco QQQ ETF, you'll still likely end up with some considerable gains in the long run. Suppose, for example, that the fund grows by a slower rate of 8% per year (including dividends), on average. Here's how a hypothetical $10,000 investment would grow in the fund under such an assumption.
| Year | Investment Value | Times Original Value |
|---|---|---|
| 5 | $14,693 | 1.47 |
| 10 | $21,589 | 2.16 |
| 15 | $31,722 | 3.17 |
| 20 | $46,610 | 4.66 |
| 25 | $68,485 | 6.85 |
| 30 | $100,627 | 10.06 |
Calculations by author.
It could take as long as 30 years, but even at a slower growth rate, it's possible to see your investment grow to more than 10 times its original value.
A no-brainer ETF to buy and hold
Estimating how long it may take for an investment to generate 10x returns is based on assumptions. Whether the Invesco QQQ fund averages an 8% return or grows by 7% or 9% can have a drastic effect on your portfolio's overall performance.
Instead of trying to predict what the actual return might be, investors should focus on the following two takeaways from all this, which is what matters most.
The first is that the Invesco QQQ fund can potentially be a market-beating investment in the long run. However well the market does, odds are, by focusing on the best growth stocks, the Invesco QQQ ETF can come out with stronger returns, making it an ideal place to invest.
The second takeaway is that it's better to remain in the markets than trying to time them, as that could result in you missing out on gains along the way. Even if stocks may seem expensive right now, over the very long run, they are still likely to rise in value, which is why it may not be too late to invest in the Invesco QQQ fund despite its impressive returns. That doesn't mean every year will be a good one, but over time, the gains should more than offset the losses.
For buy-and-hold investors, this ETF can be a no-brainer investment that you can just add to your portfolio and forget about.
