Why I Avoid QQQ: Great Companies, an Arbitrary Index, and a Tax-Aware Way Out

QQQ is one of the most successful ETFs ever launched. It has outperformed the S&P 500 over most of the last fifteen years, its options market is among the deepest of any ETF, its fee dropped to 0.18% in December 2025, and its holdings include most of the giants of modern software and semiconductors.² People who have bet against it look silly on a chart. I am not betting against it; I own nearly everything inside it through broad market funds. My objection is narrower and, I think, more durable than a valuation call: the Nasdaq-100 is a list of companies defined by which stock exchange they pay listing fees to, and that is not a portfolio strategy.

What QQQ and QQQM are

QQQ and its cheaper sibling QQQM both track the Nasdaq-100 Index: the 100 largest non-financial companies listed on the Nasdaq exchange, weighted by a modified market-cap scheme, reconstituted each December and rebalanced quarterly.³ As of the Q1 2026 fact sheet, that works out to 102 securities, about 60% technology and 21% consumer discretionary, a price-to-earnings ratio around 36, and roughly 47% of the fund in its top ten holdings.¹ Invesco itself classifies the fund as non-diversified.

Two housekeeping facts before the argument. First, QQQ restructured in December 2025: shareholders voted to convert it from a 1999-era unit investment trust into a standard open-end ETF, which cut the fee from 0.20% to 0.18% and let the fund reinvest income and lend securities.² The old structural criticisms of QQQ’s trust format are now history. Second, for buy-and-hold investors, QQQM offers the same index at 0.15%; QQQ’s remaining edge is trading liquidity and its options ecosystem, which long-term investors do not need. Both fees are competitive, and my objection lives entirely in the selection rule.

The Nasdaq-100 indexes an exchange

Every other fund I own tracks a market segment: the entire US market, the entire non-US market, small-cap value stocks, global value stocks. The Nasdaq-100 tracks a customer list. To be eligible, a company must list on the Nasdaq exchange; a company of identical size, profitability, and business listed across town on the NYSE is excluded by rule.³ That single filter keeps out Salesforce, ServiceNow, Oracle, IBM, and Uber, five of the largest software and platform companies in the world, while a second filter, the exclusion of anything classified as financial, removes Visa, Mastercard, JPMorgan, and Berkshire Hathaway regardless of where they list.

The membership follows listing decisions in both directions, and the history makes the arbitrariness concrete. In July 2013 Oracle moved its listing from Nasdaq to the NYSE, the largest exchange transfer ever at the time. Nothing about Oracle’s business changed that week, but the index was required to drop it, and Tesla took its slot.⁴ In November 2024 the flow reversed: Palantir transferred from the NYSE to Nasdaq, in a move widely understood as positioning for index inclusion, and joined the Nasdaq-100 four weeks later.⁵ In May 2026 Nasdaq formalized the on-ramp with a fast-entry rule that lets a sufficiently large company enter the index fifteen days after listing.⁶ A trillion-dollar company can enter or exit this index through a listing agreement, which is a corporate relations decision, while QQQ’s shareholders inherit the turnover.

Concentration is managed the same way: administratively, after the fact. In July 2023, when the seven largest holdings grew to about 55% of the index and breached its weighting caps, Nasdaq executed a special rebalance, only the third in the index’s history, that cut them to roughly 43% overnight.⁷ Note what the trigger was: cap arithmetic, and neither valuation nor diversification. My VOO + QQQ + SCHD guide calls QQQ a strange fund; this is the full version of why. No academic factor, no sector definition, and no expected-return model selects these 100 companies. A listing venue does, and “the largest non-financials that chose one exchange” is an accident of corporate history wearing the costume of a strategy.

Great companies you already own

The standard reply is that the selection rule does not matter because the outcome is a roster of the best companies in the world. Two things are wrong with that. The first is that a total-market fund already owns all of them: every Nasdaq-100 company sits inside VTI at its market weight, so buying QQQ adds no new companies, only a bigger helping of the largest ones. My tech bro portfolio guide works through the overlap arithmetic. The second is that “great company” and “great investment” are different claims. A price-to-earnings ratio around 36 means the market has already capitalized extraordinary expectations; the purchase only outperforms if reality beats expectations that are themselves extraordinary.

The deeper reason to prefer breadth is the skewness of long-run stock returns. Bessembinder’s global study of 64,000 stocks found that the best-performing 2.4% of firms account for the entire $75.7 trillion of net global stock-market wealth created from 1990 to 2020, and that most stocks, in the US and abroad, underperformed Treasury bills over their lives.⁸ Wealth creation is rare, extreme, and impossible to reserve in advance for one exchange’s listings. The Nasdaq-100 happened to contain a remarkable share of the last cycle’s winners. The next cycle’s winners owe it nothing: they may list on the NYSE as Salesforce and Uber did, trade in Amsterdam or Taipei or Seoul, or not exist yet. A global market portfolio holds them all by construction, which is the entire case for global diversification.

What I hold instead

My core is VTI and VXUS: the entire US market for 0.03% and the entire non-US market, about 8,700 stocks, for 0.05%.⁹ On top of that core I tilt with AVUV (US small-cap value, 0.25%), AVDV (international small-cap value, 0.36%), and AVGV (global value, 0.26%), which select stocks on price relative to book value and expected profitability.¹⁰ A tilt is a deviation from the market, and every deviation needs a reason. The value and profitability premiums have five decades of academic evidence, an economic story about prices and discount rates, and out-of-sample support across countries.¹¹ A Nasdaq-listing tilt has a spectacular fifteen-year chart. Those are different kinds of justification, and the difference is what separates a bet from a strategy.

The caveats run in both directions, as usual. Value tilts can trail the market for brutal stretches, the Avantis funds cost more than broad index funds, and nothing guarantees the premiums show up on your schedule; I work through the sizing discipline in Is Factor Investing Dead? But when a value tilt underperforms, I can explain why I hold it in one sentence grounded in evidence. When a QQQ tilt underperforms, the honest explanation is “I liked the recent winners and they stopped winning,” and portfolios held on that logic tend to get sold at the bottom. My full allocation is in the Engineer Investor portfolio guide.

If you already hold QQQ with large gains

None of the above means you should sell QQQ tomorrow. In a 401(k), IRA, or HSA, repositioning is free of tax consequences, and you can simply redirect the money. In a taxable account, a large appreciated QQQ position is a genuine constraint: selling realizes long-term gains taxed at 0%, 15%, or 20% federally,¹² plus the 3.8% net investment income tax above $200,000 of income ($250,000 married filing jointly),¹³ plus state tax. A sequence that respects the tax bill:

• Stop adding. Redirect new contributions and dividend payments to the funds you actually want. This costs nothing and starts diluting the position immediately.
• Rebalance inside tax-advantaged accounts first. The household allocation is what matters, and the retirement accounts can absorb the adjustment tax-free (my household portfolio guide covers this coordination).
• Spend the position where taxes are low or zero. Harvest any lots with losses, sell appreciated lots in low-income years against the 0% bracket, donate appreciated shares instead of cash, and remember that heirs receive a stepped-up basis.¹⁴
• Trim deliberately, if at all. Compare the one-time tax cost against what the switch buys you each year. The calculator below runs that break-even with your basis, bracket, and fee difference.

For QQQ the fee savings are modest (0.18% to VTI’s 0.03%), so the break-even math often says the diversification, and any reduction in single-name concentration, has to justify the switch on its own. Deliberately holding a legacy position while directing all new money elsewhere is a perfectly respectable answer; my guide on trapped taxable positions treats the general problem in depth.

When QQQ makes sense

• Traders. QQQ’s liquidity and options market are unmatched. If you are hedging, writing options, or moving size intraday, QQQ is the right tool; none of this article is about you.
• A deliberate, written-down satellite. An investor who wants a concentrated mega-cap growth bet, sizes it at 5 to 10%, writes down the thesis and the exit rule, and uses QQQM for the lower fee is making an informed tilt, and informed tilts are allowed.
• Legacy taxable positions. As above: holding an appreciated position while redirecting new money is often the rational tax decision, whatever the portfolio-purist answer is.
• Tax-advantaged accounts with a plan. If QQQ is your 401(k) menu’s least-bad growth option or a bet you revisit annually, the unwinding costs nothing when your view changes.

The investor it does not fit is the one it is most often sold to: the long-term saver who buys it as a core holding because it outperformed, believing it represents technology or innovation as a segment. It represents an exchange’s largest non-financial customers. Recent outperformance is a description of the past, and the methodology gives no reason to expect it from the future.

What I recommend

Starting fresh: VTI plus VXUS (or VT) as the whole equity core, and stop there unless you have a reason grounded in something other than a chart. If you want higher expected returns and can tolerate a decade of tracking error, tilt toward value and profitability with AVUV, AVDV, or AVGV, sized so you can hold it. If you want QQQ anyway, buy QQQM, cap it at satellite size, and write the sentence you will read to yourself when it lags the market for three years. If you already hold QQQ with big gains, run the break-even above and move with the tax code instead of against it. And whatever you decide, decide it about your whole household portfolio, since the 401(k), the IRA, and the brokerage account are one portfolio wearing three wrappers.

Frequently Asked Questions

Is QQQ good for long-term investing?

It has been excellent in hindsight, which is a different question. QQQ concentrates roughly half its assets in ten mega-cap stocks selected by exchange listing, at a price-to-earnings ratio around 36. Long-term investors get broader diversification at lower cost from a total-market fund that already contains every QQQ holding. QQQ is defensible as a deliberate satellite bet; as a core holding, it is a concentration decision most buyers have not consciously made.

Should I buy QQQ or QQQM?

For buy-and-hold investors, QQQM: the identical index at 0.15% instead of 0.18%. QQQ’s advantages, tighter spreads and a deep options market, matter for traders and are worth nothing to someone making monthly contributions.

Why is Salesforce not in QQQ?

Because it lists on the New York Stock Exchange, and the Nasdaq-100 only admits Nasdaq-listed companies. Size and sector are irrelevant: Salesforce, ServiceNow, Oracle, IBM, and Uber are all excluded by listing venue alone. The rule works in reverse too, as Palantir showed by switching exchanges in November 2024 and entering the index a month later.

Should I sell my QQQ?

In a tax-advantaged account, reposition freely. In a taxable account with large gains, usually not all at once: stop adding, redirect new money, rebalance inside retirement accounts, and trim only when the tax cost is justified by the diversification gained, using losses, low-income years, donations, and (eventually) stepped-up basis. The break-even depends on your basis and bracket, which is what the calculator above computes.

Is QQQ better than VTI?

They are different objects: VTI owns the whole US market (~3,500 stocks at 0.03%), while QQQ owns 100 of its largest Nasdaq-listed non-financial members at 0.18%. Every QQQ holding is already in VTI. QQQ has outperformed in the mega-cap growth era; whether it continues depends on those same stocks beating expectations already priced at a P/E around 36. Broad ownership needs no such bet.

Key Takeaways

• The Nasdaq-100 selects by listing venue. Salesforce, Oracle, IBM, and Uber are out for trading on the NYSE; Palantir got in a month after switching exchanges; Oracle’s 2013 exchange move ejected it and seated Tesla.
• You already own the companies. Every QQQ holding sits in VTI at market weight. QQQ is a concentration decision, and most buyers have not consciously made it.
• Winners will not reserve themselves for one exchange. The top 2.4% of global stocks created all $75.7 trillion of net market wealth since 1990. Breadth holds them wherever they list.
• Tilt on evidence, size for endurance. Value and profitability tilts rest on five decades of research; an exchange-listing tilt rests on a fifteen-year chart.
• Exit through the tax code, never against it. Appreciated QQQ in taxable calls for redirected contributions, retirement-account rebalancing, and deliberate trimming, and the break-even is computable.

Related Guides

• The VOO + QQQ + SCHD Portfolio: the popular three-ticker mix and why it is one large-cap US bet.
• The Tech Bro Portfolio: the overlap arithmetic of stacking QQQ and VGT on a broad core.
• Why I Avoid SCHD: this article’s sibling, on the dividend-screen version of an indirect bet.
• Why I Like AVUV, AVDV, and AVGV: the factor funds I tilt with instead.
• The Simplified Engineer Investor Portfolio: the full 36/24/40 allocation.
• The Hidden Risk of Bespoke ETFs in Taxable Accounts: the general framework for appreciated positions you no longer want.
• The Case for Global Equity Diversification: why the next winners may not be American, let alone Nasdaq-listed.

Sources

1. Invesco, QQQ ETF pages and QQQM fact sheet, Q1 2026 (102 holdings; ~60% technology, ~21% consumer discretionary; top-10 ~47% of assets; P/E ~36.5; QQQ 0.18% / QQQM 0.15%). invesco.com.
2. Invesco, “Invesco QQQ Shareholders Vote to Approve Modernization” (December 2025: conversion from unit investment trust to open-end ETF; total expense ratio reduced from 0.20% to 0.18%; fund gains ability to reinvest income and lend securities). prnewswire.com.
3. Nasdaq Global Indexes, Nasdaq-100 Index Methodology (100 largest Nasdaq-listed non-financial companies; modified market-cap weighting; December reconstitution, quarterly rebalances). indexes.nasdaq.com.
4. Business Wire, “Oracle Corporation to Transfer Stock Listing to NYSE” (June 2013); CNBC, “Tesla Motors to Replace Oracle on Nasdaq 100 Index” (July 2013). businesswire.com, cnbc.com.
5. Palantir Technologies, SEC Form 8-A (Nasdaq listing certification, November 2024); Nasdaq, Nasdaq-100 reconstitution effective December 23, 2024 (Palantir added). sec.gov, nasdaq.com.
6. Nasdaq, “Nasdaq-100 Index Methodology Update: Why Now, and What It Means” (May 2026: fast-entry rule for top-40-size companies after fifteen days of trading; free-float weighting cap). nasdaq.com.
7. Nasdaq, Inc., “The Nasdaq-100 Index Special Rebalance to be Effective July 24, 2023” (third special rebalance in index history; top seven holdings reduced from ~55% to ~43% of the index). ir.nasdaq.com.
8. Hendrik Bessembinder, Te-Feng Chen, Goeun Choi, and K.C. John Wei, “Long-Term Shareholder Returns: Evidence from 64,000 Global Stocks,” Financial Analysts Journal 79(3), 2023 (top 2.4% of firms account for all $75.7 trillion of net global stock-market wealth creation, 1990-2020). ssrn.com.
9. Vanguard fund pages: VTI (0.03%, ~3,500 holdings, CRSP US Total Market Index) and VXUS (0.05%, ~8,700 holdings, FTSE Global All Cap ex US Index). vanguard.com.
10. Avantis Investors fund pages: AVUV (0.25%), AVDV (0.36%), AVGV (0.26% net / 0.28% gross), as of January 2026. avantisinvestors.com.
11. Eugene Fama and Kenneth French, “A Five-Factor Asset Pricing Model,” Journal of Financial Economics 116(1), 2015, 1-22. sciencedirect.com.
12. IRS, Topic No. 409, Capital Gains and Losses (long-term rates of 0/15/20%). irs.gov.
13. IRS, Net Investment Income Tax (3.8% above $200,000 single / $250,000 married filing jointly MAGI). irs.gov.
14. IRS, Topic No. 703 and Publication 551 (basis of inherited property set to fair market value at death). irs.gov. Figures are point-in-time and were verified against issuer, exchange, IRS, and journal sources.

Disclosure: the author holds VTI, VXUS, and AVGV and does not hold QQQ or QQQM. Fund and index figures are as of mid-2026 and change over time; check issuer pages before acting on them. This article is educational and is not financial or tax advice; the tax treatment of selling appreciated positions depends on your situation.