Is it a good idea to invest in the Invesco QQQ ETF now that the Nasdaq is at its peak? History provides a straightforward response.

For tech companies that want to go public, the Nasdaq is the preferred choice. It offers lower listing costs compared to the New York Stock Exchange, and has fewer hurdles, making it a smoother process for rapidly growing startups.

The Nasdaq-100 is a key index that includes the 100 largest non-financial firms on the Nasdaq. Its composition tilts heavily towards technology, with many companies leading the charge in sectors like AI, cloud computing, and digital advertising. Consequently, annual returns for Nasdaq 100 companies tend to outpace those of more diversified firms, including the S&P 500 (^GSPC +0.36%).

The Invesco QQQ Trust (QQQ +0.38%) is an ETF that mirrors the performance of the Nasdaq 100 by holding the same stocks in similar proportions. Should investors jump in now, while the index is at an all-time high? History might provide some insights.

High-growth index fund featuring high-tech giants

While the Nasdaq 100 and S&P 500 share several top stocks, the Nasdaq gives then a much greater weight. Notably, the five largest holdings in the Invesco QQQ make up 39.5% of its total value, whereas in the S&P 500, those stocks account for only 30.2%.

Since the AI trend started to gain momentum in early 2023, these top five stocks have collectively seen a median return of 218%. Meanwhile, the Nasdaq 100 itself returned 136%, significantly better than the S&P 500’s 78% increase.

Nvidia and Broadcom manufacture chips and components that are essential for AI software development. Microsoft and Alphabet are among the largest consumers of this hardware, utilizing it to create their extensive language models and AI chatbots, while also profiting by leasing their computing capabilities through cloud services like Microsoft Azure and Google Cloud.

On a different note, Apple is poised to be a major player in AI for everyday users. With over 2.35 billion devices such as iPhones, iPads, and Macs globally, the company is gradually weaving AI features into its operating systems.

Additionally, the Invesco QQQ ETF also includes other notable AI stocks like Amazon, Tesla, Meta Platforms, Palantir Technologies, and Advanced Micro Devices.

Interestingly, despite its tech-heavy focus, this ETF offers diversification with investments in retail and consumer product companies like Costco Wholesale, Starbucks, PepsiCo, and Monster Beverage.

History shows it’s always a good time to invest

Since its launch in 1999, the Invesco QQQ ETF has managed a compound annual return of 10.6%, accounting for market fluctuations, downturns, and corrections during that time.

Volatility is, perhaps, just part of investing. In the last five years alone, the Nasdaq 100 has witnessed three bear markets, triggered by events like the COVID-19 pandemic in 2020, rising interest rates in 2022, and tariffs proposed in April of this year.

While these moments felt significant, here we are, with the Nasdaq 100 hitting record highs. Generally, bear markets last about 289 days or roughly nine and a half months (according to The Hartford Fund). This history implies that long-term investors can often expect positive returns.

Though AI stocks are currently boosting the Nasdaq 100, other technological advancements—like personal computers, smartphones, the Internet, and electric vehicles—have also driven returns since the 1980s.

Technology is always evolving, so even if the push from AI slows down in a few years, new industries could emerge. Innovations in self-driving cars, robotics, and quantum computing are just a few of the exciting areas to keep an eye on. Thus, investors might consider staying the course with the Invesco QQQ ETF, even as the Nasdaq 100 reaches new heights.