If I’d invested £5,000 in a Nasdaq index fund 5 years ago, here’s how much I’d have now

Stocks on the US Nasdaq index make the headlines here in the UK too. We can’t have missed Nvidia (NASDAQ: NVDA), with a market capitalisation of nearly $3.4trn (yes, trillion). It’s worth more than all the companies of the FTSE 100 combined.

And Tesla always seems to be getting a mention. The Tesla share price is up 31% since the US election. Tesla is still well below Nvidia’s rise in the past five years:

Flying tech stocks

On Friday (22 November) the Nasdaq closed at 19,003 points. On the same date in 2019, it ended at 8,520 points. That’s a gain of 123%.

My imagined £5,000 invested in a low-cost Nasdaq index tracker fund back then would be worth around £11,300 today. There’d be some small charges for the fund management. But the Nasdaq pays an average dividend of around 1.8%, so I’ll treat them as canceling out.

My key, and surprising, take on this is how small that gain is. I mean, this is the index that provides overnight multibaggers, isn’t it?

Index comparison

Over the same five years, the broader S&P 500 has risen by 92%, only just behind the Nasdaq. The dividend yield is similar, at around 1.2%.

Based on this, the S&P seems like a better index to track than the Nasdaq, even if just for lower risk. But that’s only looking back five years.

Winding the clock back a decade, the S&P 500 has gained 189%, but the Nasdaq is up a whopping 303%. So before I decided which to track, I’d carefully examine multiple timescales and think about my own investment horizon.

My £5,000 invested in a Nasdaq tracker 10 years ago could be worth £21,500 now. And, the same amount invested when the tech index started in February 1971 could have grown to £948,600. Not that my pocket money reached five grand back then, mind.

Concentration

But that five-year return seems disappointing, but it reminds me of one main lesson. The Nasdaq’s gains are concentrated among just a few key stocks.

Right now, it’s mostly the so-called ‘Magnificent Seven’. That’s Nvidia and Tesla, along with Apple, Microsoft, Amazon.com, Alphabet, and Meta Platforms. They all have artifical intelligence (AI) in common.

CNBC runs its own Magnificent 7 index, and that’s up 320% just since it started in December 2022.

Nasdaq leader

To get back to Nvidia, what we see there is a five-year gain of 2,549%. And to get some idea of where that growth came from, the company posted total revenue back in 2020 of $10.9bn.

Then by the year to January 2024, total revenue had reached a whopping $60.9bn. Q3 revenue this year, reported on 20 November, reached $35.1bn. That’s in a single quarter alone. Still, as it looks like growth might slow a little, investors weren’t satisfied, and the price dipped a little.

As investors, we need to be aware that Nasdaq growth is often concentrated in a small number of stocks. The index can be very volatile too, and it’s not really for those who don’t want risk.

Still, if I’d put a shilling in it in 1971…

The post If I’d invested £5,000 in a Nasdaq index fund 5 years ago, here’s how much I’d have now appeared first on The Motley Fool UK.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.