Does the Invesco QQQ ETF make millionaires?

There is a misconception that investors need to make big bets on individual stocks to succeed in the stock market. However, numerous types of investments, including exchange-traded funds (ETFs), can produce life-changing investment returns. The big question is: how quickly do you try to achieve this goal?

Sure, anyone who wants to become a millionaire seemingly overnight has to take enormous risks that are unlikely to pay off. Trying to get rich quick is almost always a bad strategy.

However, if you have some patience, Invesco QQQ ETF (QQQ -0.43%) could be the best way to make significant profits without losing your hard-earned money.

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

Proven results and how the Invesco QQQ achieves them

Exchange-traded funds are groups of stocks that are traded under a ticker symbol. ETFs often follow a market index or investment style. The Invesco QQQ follows the Nasdaq-100a group of large-cap growth stocks, mainly in the technology sector. Large technology companies have dominated the stock market for over a decade thanks to growth trends such as cloud computing and digital advertising. The most prominent market leaders, known as the “Magnificent Seven” stocks, now make up over 42% of the Invesco QQQ. It has delivered exceptional investment returns over the past decade:

Data from YCharts.

With a total return of 700% in just a decade, the question is whether this performance will continue. There are reasons why. Today, technology leaders dominate the modern economy. Think of high-performing companies like Amazon, Meta, Apple, alphabet, Microsoft, TeslaAnd NVIDIAThey lead huge and growing end markets, including artificial intelligence (AI), cloud computing, digital advertising, self-driving vehicles and renewable energy.

The Nasdaq-100 and the Invesco QQQ contain dozens of other stocks, but this small handful forms the foundation. Analysts expect almost all of the Magnificent Seven stocks to continue growing their earnings at double-digit rates over the long term. These major contributors to the Invesco QQQ could continue to propel the ETF to new heights if they do.

There is a catch

Risk and reward go hand in hand. While the companies in the Invesco QQQ are mostly large-cap stocks with little risk of bankruptcy, high-growth technology stocks are vulnerable to market cycles with booms and busts that can cause huge losses. Just look at how far the Invesco QQQ has occasionally fallen from its highs:

Data from YCharts.

Many investors have emotional problems coping with a 30%, 60% or 75% drop in their investment. That's why portfolio diversification is so important. Of course, the Invesco QQQ is diversified across more than 100 stocks, but investors should also consider how much risk and volatility their overall portfolio might experience. Despite the long-term investment returns of the Invesco QQQ, it would not be wise to invest all your money in it.

Is the Invesco QQQ making millionaires today?

The large technology companies that make up over 40% of Invesco QQQ continue to enjoy decades of growth opportunities. The technology cycle can be volatile at times, but the long-term direction appears to be up. So yes, Invesco QQQ is a potential millionaire investment.

However, the Magnificent Seven have already had a remarkable two-year run, raising the question of whether tech stocks are once again in a bubble. Granted, no one knows when the next stock market crash will come or how bad it will be, so let's focus on the long-term perspective.

Consider a responsible investment strategy that includes portfolio diversification and dollar-cost averaging. Buy slowly and regularly, and save when possible. That way, you can enjoy long-term growth while managing your risk and maybe even have some extra cash on hand if there is a market downturn.