Investing in the stock market could turn your $10,000 into $300,000. Here’s how.

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It’s been a brutal year for the stock market, but downturns like this are often the best time to invest. In theory, because valuations are depressed, investors have the opportunity to buy stocks of quality companies at a bargain price and watch their positions grow.

Of course, the hardest part is finding the right actions. But an easy way to dip your toe into a volatile market in a still uncertain economy is to invest in exchange-traded funds (ETFs). ETFs allow you to invest in a large index-based portfolio of stocks rather than building your own portfolio of individual companies. It’s a relatively easy way to invest without taking excessive risk, especially for those who don’t know where to start.

Here’s how a $10,000 investment in a diversified ETF could grow to well over $300,000 given enough time.

Back to 2002

We can’t know for sure what the market will do over the next 10 or 20 years, but we can look back for indications of how things tend to unfold. As the disclaimer says, past results are no guarantee of future returns, but they can provide valuable perspective.

If you go back 20 years, the economy and the markets were in the same state as they are today. The dot-come bubble had burst in 2000, and investors were still feeling the pain of the S&P500 down 23% in 2002, while Nasdaq Compound was 32% that year. Sound familiar? Also, the economy was not in recession, but it had been for most of 2001 and was slowly increasing in 2002.

In many ways, investors navigating the markets in October 2002 faced a very similar situation to what investors face in October 2022. With that in mind, let’s examine how much a $10,000 investment in the bear market of 20 years ago would have grown around this time.

The 20-year performance of the Invesco QQQ

In this example, let’s look at a technology ETF, the biggest loser of the dotcom bubble and this year as well. More precisely, we will use the Invesco QQQ ETFs (QQQ 3.06%)since it is one of the oldest and largest technology ETFs with some $150 billion in assets.

The Invesco QQQ Trust ETF was launched on March 10, 1999 and tracks the performance of the Nasdaq 100 index, the 100 largest Nasdaq stocks, excluding those in the financial sector. It is heavily weighted towards technology stocks, which currently make up around 49.5% of the index. The three largest farms are Apple, Microsoftand Amazon.

Over the past 20 years, the QQQ has posted an average annualized return of 13% (from October 25, 2002 to October 25, 2022) – including its 28% decline over the past 12 months.

If you had invested $10,000 in QQQ on October 25, 2002, you would currently have over $115,000 in your portfolio. But if you contribute an additional $100 each month to the ETF during this period, your total investment of $34,000 would be worth just under $220,000.

It might not be enough to retire on your own, but when you add other sources of income like Social Security or contributions to an employer-sponsored retirement plan and other retirement accounts, it can be a big boost to your nest egg.

And if you have a horizon of 30 years…

It’s worth pointing out how much faster your returns will accumulate if you keep your money invested even longer. If you instead had a 30-year window to invest that $10,000 (with the $100 monthly contribution), your portfolio would grow to nearly $670,000 based on the 12.4% annual return of the Nasdaq 100 index. over this period. Even without monthly investment, it would reach around $333,000.

As stated earlier, we can’t predict what the next 20 or 30 years in the market will hold, but we do know that the Nasdaq 100 price-earnings ratio has fallen from around 35 this time last year to 23 as as of this writing – and it’s expected to fall further to 21 a year from now. Valuations are indeed lower and growth stocks such as those in the Nasdaq 100 offer the best long-term returns. Despite the uncertainty, now is a good time to consider building long-term positions in quality investments like QQQ.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Dave Kovaleski has no position in the stocks mentioned. The Motley Fool holds positions and recommends Amazon, Apple and Microsoft. The Motley Fool recommends the following options: long calls $120 in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.

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