Why Investing in Nasdaq-100 is Better Than S&P 500?
Overview
Everyone’s always talking about the S&P 500 being the best place to invest your money, right?
Well, hold on to your hats because today, I’m flipping that narrative on its head.
In this post, I’ll explain why investing in the Nasdaq-100 might actually be better.
You can also check out my youtube video (https://youtu.be/ow82cPovF38) on this topic.
To support this claim, I will discuss and analyze the annual returns, for both Nasdaq-100 and S&P 500, their volatility aspects, and how you can safeguard your investments.
Stick with me till the end, because you are going to get some surprising insights, if you are thinking to invest in either of these indexes.
Quick Refresher
Let’s start with a quick refresher in case you’re new to investing. Both S&P-500 and Nasdaq-100 are indexes which provide a statistical measure by tracking the performance of a specific group of stocks-
- S&P 500: Tracks the 500 largest companies in the U.S. across diverse sectors like tech, healthcare, and finance. It’s a snapshot of the overall market.
- Nasdaq-100: Tracks the 100 largest non-financial companies listed on Nasdaq. It’s a tech-heavy index with some of the most innovative companies in the world — think Apple, Microsoft, Tesla, and Nvidia.
Investing in the S&P 500 or Nasdaq-100 can be done through ETFs. For the S&P 500, popular ETFs like SPY, VOO, or IVV track the index. If you’re interested in the Nasdaq-100, you can invest through QQQ, one of the most widely traded ETFs, or similar options like TQQQ.
What Data We Are Analyzing?
I pulled the data from 1985 all the way to the current year. I have considered the closing valuations for these indexes for each year till 2023.
As 2024 is still not completed, i have considered the last month (while recording this video), which is October 2024.
Average Annual Returns
Now that we have the data ready. let’s try to get some insights!
The first number everyone looks at is the 1-year return, which means if you have invested x amount of money for one year, in any of these indexes, how much your assets will increase.
If you look into the S&p 500 index, average annual return across 40 years, is 10.23% whereas in case of Nasdaq-100, this value is whopping 17.39%.
This clearly indicates that investing in Nasdaq-100 will return you 7 percentage more, compare to s&p500.
Which means, if you would have invested 100 dollars in any given year, on average it would become 110.23 in case of s&p 500 and in case of nasdaq-100 it will be 117.39 dollars.
Volatility
There is one catch though — volatility.
If we go through the returns in more detail, you will see that in 2000, 2001 and 2002 the annual returns were all negative for both s&p 500 and nasdaq.
Interestingly Nasdaq-100 dropped much harder compare to s&p 500.
This higher volatility is why some people lean towards the ‘safety’ of the S&P 500.
But what if I told you there’s a way to beat this volatility?
The simple way to achieve this is by “investing for long term”.
Investing for long term
From a long term investing perspective, we will be looking into the returns of nasdaq-100 and s&p 500 for 5, 10, 20 years periods.
5 years
Let’s look at returns over a 5-year period.
If you invested $100 in Nasdaq-100 five years ago (end of 2019), it would be worth $255.12 today. That’s an annual return of 20.6%.
‘Okay,’ you say, ‘But maybe that’s just luck over the last 5 years.’ Great point!
To answer this, I ran the numbers for all 5-year periods in the last 40 years, starting from 1985.
How i am doing this?
So.. for the 5 year period returns for today, we started calculating from end of 2019. Now for the 5 year period returns in 2023, I am considering the period starting from 2018, for 2022 this 5 year period will start from 2017, and so on..
And here is the average annual returns for a 5 year period investment across all the available years.
I could not make the calculation for year 1990 and further down, as we do not have the 5 year period available in these case.
Still we have the data across 35 years, and if we see the average annual returns, this again tells that your annual return is around 17.6 %.
On the other side, a similar calculation for s&p 500, its just 9.7%, which is almost half of nasdaq-100 gains.
This means if you would have invested for 5 years at any point of time, with nasdaq-100 you would have gained 2 times more than s&p 500.
10 year period
“Let’s push it further, to further put more weight on my theory.
For 10-year investments, a similar calculation tells us that
- Nasdaq-100’s annual return is 17.3%.
- S&P 500? Just 9.5%.
And for 20-year investments:
- Nasdaq-100 gives you 15.4% annually.
- S&P 500 lags behind at 8.3%.
The longer you invest, the bigger Nasdaq-100’s lead grows.
Conclusion
So, here’s the deal:
If you’re thinking long-term — 5, 10, or 20 years — Nasdaq-100 is a clear winner. Yes, it’s a bit more volatile, but that smooths out over time.
We live in a digital-first world. Technology is everywhere, and innovation isn’t going to slow down. Companies in the Nasdaq-100 are the ones leading this change.
If you believe in the power of innovation and want to grow your wealth, with minimal involvement, Nasdaq-100 is your best bet.
Thanks for reading! This is my first post on investment.
Disclaimer: I am not a professional investment advisor, but a firm believer in facts and figures.
You can check out my youtube video on the same topic.
Don’t forget to like, subscribe, and comment below — what’s your take on Nasdaq-100 vs. S&P 500?”
