If I had invested £5,000 in a Nasdaq index fund 5 years ago, here is how much I would have now.

US stocks Nasdaq The index is making headlines here in the UK too. We will not be missed Nvidia (NASDAQ: NVDA), with a market capitalization of nearly $3.4trn (yes, trillion). It is more important than all the companies of FTSE 100 combined.

Again Tesla he always seems to be mentioned. Tesla’s share price has risen 31% since the US election. Tesla has been far behind Nvidia’s rise over the past five years:

Flying tech stocks

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

My £5,000 invested in a cheap Nasdaq index tracker fund at the time would be worth around £11,300 today. There may be a small fee for managing the fund. But the Nasdaq pays about 1.8% interest, so I’ll treat them as a cancellation.

My key, and surprisingly, take away is how small that benefit is. I mean, this is the index that provides nightly multibaggers, right?

Index comparison

In the same five years, wide S&P 500 up 92%, just behind the Nasdaq. The dividend yield is the same, about 1.2%.

Based on this, the S&P appears to be a better index to track than the Nasdaq, even if it is because of the lower risk. But that only looks back five years.

Turning the clock back ten years, the S&P 500 has gained 189%, but the Nasdaq is up 303%. So before I decided which one to track, I would carefully examine multiple time scales and think about my investment position.

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

Concentration

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

Currently, most of them are called ‘Magnificent Seven’. That’s Nvidia and Tesla, too an apple, Microsoft, Amazon.com, Alphabetsagain Meta Platforms. They all have the same artificial intelligence (AI).

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

Nasdaq leader

To return to Nvidia, what we see is a five-year return of 2,549%. And to get an idea of ​​where that growth is coming from, the company posted total revenue in 2020 of $10.9bn.

Then in the year to January 2024, the total amount had reached a whopping $60.9bn. Revenue for Q3 this year, reported on 20 November, reached $35.1bn. That’s only half of one quarter. However, as it looked like growth might be slowing down, investors were not satisfied, and the price fell slightly.

As investors, we need to be aware that the growth of the Nasdaq is often concentrated in a small number of stocks. The index can be very volatile as well, and is not really for the risk averse.

Anyway, if I could put a shilling in it in 1971…