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

You may be looking at your portfolio’s performance over the past eight months or so and scratching your head wondering when the pain will end. But when you’re investing for retirement or another future goal, it’s imperative to understand the power of a long-term investment strategy.

There have been 27 bear markets since 1929, with a bear market being defined as a market falling 20% ​​or more in any given period. There have also been 27 bull markets since 1929, and they last much longer – around 2.7 years on average compared to less than 10 months for bear markets.

Additionally, stocks lose an average of around 36% during bear markets and gain 114% during bull markets. This therefore shows that the odds are in your favor in the long run. Additionally, bear markets are usually a good time to buy, as you can invest in high-quality, established growth companies at discounted prices. With that in mind, let’s take a look at how a $10,000 investment right now could turn into over $300,000 over time.

There have been five bear markets in the past 20 years

For the purposes of this hypothesis, let’s go back 20 years and see how much a $10,000 investment in the Nasdaq 100 would have given in. During this period, there have been five bear markets – in 2002, 2008, 2009, 2020 and 2022.

The Nasdaq 100 is a growth-oriented index that includes the 100 largest stocks on the Nasdaq stock exchange, excluding financial stocks. The index is heavily biased towards tech stocks – as they have generally been the largest and fastest growing – and is often seen as an indicator of the performance of the tech sector.

The Nasdaq 100 would be a great index to invest in, as growth stocks have outperformed value stocks over the long term, and tech stocks in particular have been the best performing sector over time. With a long-term horizon ahead of you, you can ride out bear markets and generate excellent returns.

The best way to tap into the Nasdaq 100 would be through an exchange-traded fund (ETF). And one of the most popular ETFs over the past 20 years is the Invesco QQQ (QQQ -0.20%)which tracks the Nasdaq 100.

So back to our hypothesis — if you had invested $10,000 in QQQ on July 22, 2002, you would have invested in the middle of a bear market — a market that didn’t end until October 2002. sound familiar?

Through it all, a $10,000 investment would return $300,000

From July 22, 2002 to present, the QQQ has posted an annualized return of 13.6%. If you had invested $10,000 in QQQ 20 years ago and contributed $125 per month to this fund, you would have about $303,000 right now.

Keep in mind that performance goes through five bear markets, including the one we currently find ourselves in. This previous 20-year period is particularly relevant now, as the investment would have started in the middle of a bear market.

Now you know the warning: past performance is not indicative of future results, and there is no guarantee that an investment in the Nasdaq 100 will return 13.6% over the next 20 years. But history is indeed a useful guide to understanding that market volatility and declines are a fact of life – and patience has generally been rewarded.

Dave Kovaleski has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

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