The U.S. stock market just capped off one of its best decades ever. Over that 10-year span, it produced some remarkable accomplishments that benefited investors.
And tech stocks led the bull market's charge in the 2010s, thanks largely to growth stocks like the so-called FAANG group, which stands for Facebook, Amazon, Apple, Netflix, and Google parent Alphabet. The technology industry also benefited from the proliferation of so-called unicorns, privately held start-up companies valued at more than $1 billion, many of which transitioned from private to public in the last 10 years.
The last half of the decade saw some of the biggest gains for tech stocks, as the Nasdaq Composite index finally surpassed its 2000 record high in mid-2015. This benchmark is made up of more than 2,600 companies that are listed on the Nasdaq exchange, and nearly half of these constituents operate in the technology space. That's why the Nasdaq Composite is often cited as a proxy for tech stocks.
Five years is about the minimum amount of time many experts recommend you should plan to be invested in stocks. That's because the market is more likely to fluctuate in the short term, meaning you could lose money. Over longer periods of time, after setbacks, it's always gone higher again.
If you had invested $500 in an exchange-traded fund (ETF) that tracks the performance of the Nasdaq Composite back in January 2015, that would have more-than doubled in value, and would be worth about $1,060 as of January 15, 2020, according to calculations by Grow. That works out to a return of more than 110%.
Rather than just calculating the change in price, which would be about 101% in that time period, we've calculated the total return. That assumes you reinvested the dividends — a portion of a company's or fund operator's profit — you earned each quarter, which is an easy way to grow the value of your portfolio.
Video by Jason Armesto
Tech stocks have been dominating the stock market for years now, and Netflix was the top-performer of the S&P 500 during the 2010s. Because many of the largest and highest-flying stocks are in the technology sector, that's helped to spur broader gains across the market. By comparison, a $500 investment in an ETF that tracks the S&P 500 would be worth about $910 today, assuming dividends were also reinvested.
Many of the popular tech stocks have become synonymous with the definition of growth investing in recent years. With this strategy, investors knowingly pay a premium to buy the fastest-growing stocks because they expect these companies will continue to outpace the broader market. The trade-off, however, is that a lot of tech companies don't pay dividends.
In fact, among the five members of the FAANG group, only Apple currently pays a dividend. Investors have been rewarded because the prices of these growth stocks have surged higher, rather than through dividends, and that explains why the price return and total return for the above ETF was so similar over the five-year period. It's still prudent to reinvest dividends, when possible, because it's an easy way to grow your portfolio's balance.
Video by David Fang
It can be tempting to invest in those stocks that are leading the market, but it's important to understand the associated risks. Buying individual stocks can be risky, since they can experience sharp fluctuations.
Instead, a safer and more reliable investment strategy is to buy an index fund that tracks a major market benchmark. And if you keep adding money to your portfolio regularly — a strategy known as dollar-cost averaging — that will ensure you don't invest all of your money when prices are at a peak.
Rather than trying to make a quick buck on a risky investment, it's smart to focus on the long term. Experts recommend building a portfolio made up of a diversified mix of stocks that tracks the market, because it's generally a much safer bet than investing in individual stocks, and then sticking with your investments over time.
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