Will the Nasdaq 100 ETF Triple Your Money in the Next 10 Years?
There will likely come a time, however, when the list of winners broadens out. That doesn't mean the megacap names won't still be winners, but we may see the biggest future returns coming from elsewhere. Given QQQ's heavy reliance on the biggest companies, future returns could certainly still be solid, but maybe not on par with what we've seen over the past 10 years.
Valuation
There's little question that stocks are pricey right now. The S&P 500 currently trades at about 22 times forward earnings, which is near the highest levels we've ever seen for the index. The magnificent stocks trade at 29 times forward earnings, also a near-record high.
Generally, when you start with a higher valuation, future returns tend to be more modest. Keep in mind though that stock prices are driven by earnings growth. Stock prices can be expensive and rallies can continue for a while so long as companies are growing their earnings to back it up.
Given the potential of the AI revolution, it's not unreasonable to think that the Nasdaq-100 components can maintain above-average valuations for some time. With 10 years to ride out some of the highs and lows, any contraction in price-to-earnings multiples could feel less painful considering the long time horizon.
Can the Nasdaq-100 ETF triple over the next decade?
An 11% to 12% average annual return for the Nasdaq-100 and QQQ isn't a big hurdle to clear. Those returns are pretty common to what we've seen historically. The main questions are: Can these big tech and growth companies continue to generate strong earnings growth for the next several years, and will current high valuations be detrimental to future returns?
I think the answer to the first question is yes and the answer to the second is probably not. Of course, an unforeseen recession at any point over the next decade could render the entire argument moot. But as far as having the appropriate catalysts to make it happen, I think there's no question that the Nasdaq-100 could triple in the next 10 years.
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David Dierking has positions in Apple. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Will the Nasdaq 100 ETF Triple Your Money in the Next 10 Years? was originally published by The Motley Fool
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