The Nasdaq Composite (NASDAQINDEX: ^IXIC) rebounded in spectacular fashion last year. After nosediving 33% in 2022 (its worst performance since the Great Recession), the index soared 43% in 2023. Given its tech-focused composition, the excitement surrounding generative artificial intelligence (AI) was a substantial tailwind, and ongoing innovation in the space could propel the Nasdaq higher in the future.
Meanwhile, the broad-based S&P 500 was less than a percentage point from reaching a new record high last week, an event that will signal the onset of a new bull market. The S&P 500 is considered a benchmark for the entire U.S. stock market, and it returned an average of 186% during each of the last nine bull markets.
Now factor in the fact that the Nasdaq has historically compounded much more quickly than the S&P 500. The technology-centric index doubled the performance of the S&P 500 over the last three decades, and that outperformance could be magnified during the next bull market.
Taking all this together, now might be an excellent time to buy an index fund that tracks the Nasdaq Composite, and the Fidelity Nasdaq Composite ETF (NASDAQ: ONEQ) does just that.
Here's why this index ETF is a great long-term investment option right now.
The Fidelity Nasdaq Composite ETF tracks innovative tech companies
The Fidelity Nasdaq Composite ETF tracks about 1,000 U.S. growth stocks, most of which come from the technology, consumer discretionary, and communications services sectors. The index fund allows investors to spread capital across a range of innovative companies well positioned to benefit from trends like artificial intelligence, cloud computing, and electric vehicles, as well as nascent but potentially explosive technologies like robotaxis.
The top 10 holdings in the Fidelity Nasdaq Composite ETF are:
Apple: 12.3%
Microsoft: 11.5%
Alphabet: 6.7%
Amazon: 6.4%
Nvidia: 5.1%
Tesla: 3.3%
Meta Platforms: 3.2%
Broadcom: 2.2%
Costco Wholesale: 1.2%
Adobe: 1.1%
This Fidelity ETF soared 298% over the last decade, compounding at 14.8% annually. Better yet, the index fund skyrocketed 1,000% over the last 15 years, compounding at 17.3% annually. Returns of that nature may be unsustainable over a multidecade horizon, so I will assume future growth of 12% annually to introduce a margin of safety.
At that pace, $300 invested monthly (about $70 weekly) in the index fund would grow into $66,600 in one decade, $273,400 in two decades, and $915,600 in three decades.
Of course, some investors may not have $300 per month, and others may want to contribute more. The chart below shows how different monthly contribution amounts would grow over time, assuming 12% annual returns.
Holding Period | $200 Per Month | $400 Per Month | $600 Per Month |
|---|---|---|---|
10 Years | $44,400 | $88,800 | $133,200 |
20 Years | $182,200 | $364,500 | $546,700 |
30 Years | $610,400 | $1.2 million | $1.8 million |
Note: The chart assumes a 12% annual return. Dollar totals are rounded to the nearest $100.
The Fidelity Nasdaq Composite ETF is a great option for risk-tolerant investors
The secret to making money in the stock market is patience and some tolerance for risk. As discussed in the previous section, relatively small amounts of money invested regularly in the Fidelity Nasdaq Composite ETF can potentially compound into tremendous sums and even million-dollar fortunes over time. And realizing those gains requires next to no work from the investor. Index funds also reduce concentration risk by spreading capital across a broad group of stocks.
That said, the Fidelity Nasdaq Composite ETF is heavily concentrated in technology stocks. Indeed, nearly 50% of its weighted exposure comes from that single sector. That concentration has historically been a blessing and a curse. The technology sector has handily outperformed every other market sector over the last decade, so the index fund has performed well. But technology stocks have also been very volatile at times, so the index fund has been volatile, too.
Here is the bottom line: History says the Fidelity Nasdaq Composite ETF will likely be a volatile investment in the future. But history also says the index fund will outperform the S&P 500 during the next bull market, creating tremendous wealth for patient investors. With a below-average expense ratio of 0.21% -- meaning annual fees on a $10,000 portfolio would total just $21 -- this index fund is a great option for growth-focused investors comfortable with market turbulence.
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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. Suzanne Frey, an executive at Alphabet, 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. Trevor Jennewine has positions in Adobe, Amazon, Nvidia, and Tesla. The Motley Fool has positions in and recommends Adobe, Alphabet, Amazon, Apple, Costco Wholesale, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Broadcom and recommends the following options: long January 2024 $420 calls on Adobe and short January 2024 $430 calls on Adobe. The Motley Fool has a disclosure policy.
A Bull Market Is Coming: 1 Magnificent Index Fund Could Turn $300 Per Week Into $915,600 was originally published by The Motley Fool
