A $100 Monthly Investment in QQQ Could Grow Into This Over 20 Years

Because it's the most closely watched benchmark for measuring the stock market's performance, the S&P 500 index gets a lot of attention from the investment community. To get a pulse on the performance of the American economy, it makes sense to look at these 500 or so large and profitable companies.

But investors should learn about other stock market indexes, such as the Nasdaq-100, which tracks the performance of the 100 largest non-financial stocks traded on Nasdaq. The exchange-traded fund (ETF) to watch is the Invesco QQQ Trust (NASDAQ: QQQ).

This has been nothing short of a spectacular investment vehicle to have owned in your portfolio. And investors who allocate just $100 per month to the QQQ could see their wealth grow into this huge amount in 20 years.

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An exceptional track record

In the past decade, the Invesco QQQ Trust has generated a monster total return of 543% (as of Sept. 16). Assuming this pace continues over the next 20 years, a $100 monthly investment would grow into almost $261,000 by 2046. This is nearly four times what the historical 10% annualized average return of the S&P 500 index would yield.

It's impossible to be disappointed with the QQQ's historical performance. The main driver of these impressive gains has been the fantastic success of the technology sector as a whole. This ETF specializes in disruptive and innovative businesses. And investors have benefited from their progress.

The top 10 stocks in the QQQ represent a significant 47% [https://www.invesco.com/qqq-etf/en/about.html of the entire portfolio. While there are 100 or so companies in total, investors should be aware of the level of concentration. Returns depend on how these outsize holdings fare.

Businesses like Nvidia, Apple, and Microsoft have driven the gains. All their stocks have crushed the S&P 500 index in the last 10 years. The worst performer of the three was Microsoft, but even its share price soared 763% since mid-September 2016. And these companies have grown earnings meaningfully thanks to notable secular trends. These include areas like artificial intelligence (AI), mobile computing, and cloud computing.

Betting on the rising importance of technology has clearly been a very lucrative move.

Looking ahead

Investing $100 per month over 20 years amounts to $24,000. Who wouldn't want to see these consistent inflows, which uphold a dollar-cost average strategy, balloon into a $261,000 balance? This implies a phenomenal 20.4% annualized rate of return. It would be extremely difficult to outperform this rate of growth.

No one knows what the future will bring. However, it's in investors' best interest to temper their expectations. While returns going forward could resemble historical gains, as anything is possible in the stock market, there are reasons to adopt a moderate view.

The QQQ today is heavily exposed to the AI boom. The investment community has generally viewed these stocks in a very favorable light. But any sudden change in market sentiment can be a drag on performance.

Earnings growth could be slower than in the past. This could be the direct result of AI progress stabilizing. The capital expenditure supercycle could slow. Furthermore, the returns may not live up to the bulls' hype.

Profit gains decelerating could also occur simply because the most prominent tech companies are already so massive. Sustaining strong growth rates far into the future becomes increasingly challenging. It's much more difficult to increase earnings per share in a year by 25%, for instance, off a much larger starting base.

Then there's the concept of valuation. The QQQ trades at a price-to-earnings (P/E) ratio of 34.5. This could be justified given the dominance of its businesses. However, the valuation is certainly elevated, which some might believe introduces downside risk should financial results fail to meet expectations.

Neil Patel has positions in Invesco QQQ Trust. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.