The ASX-listed exchange-traded fund (ETF) Betashares Nasdaq 100 ETF (ASX: NDQ) has been one of the best ETF performers over the past ten years.
It gives investors exposure to 100 of the largest businesses that are listed on the NASDAQ, a stock exchange in the US. This is where you'll find many of the world's largest tech companies, but it's not just a place for technology businesses.
Since its inception in May 2015, it has returned an average of 19.6% per annum. The index that it tracks, the NASDAQ-100 Notional Net Total Return Index, has returned an average of 21.26% per year over the last decade.
That's a really impressive return, in my view.
If someone had invested $250,000 a decade ago and it returned an average of 19.6% per year, it'd be worth $1.5 million today.
Past performance is obviously not a guarantee of future performance, particularly when it comes to returns of that size. However, it wouldn't need to do as well to turn $250,000 into $1 million in the next decade.
ASX ETF return needed to make $1 million
The power of compounding can help investors turn a smaller amount into a much larger figure.
Albert Einstein once supposedly said about compound interest:
Compound interest is the most powerful force in the universe. Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't pays it.
If I invested $250,000 into the share market, it is certainly possible to grow that figure to $1 million. How long it takes will depend on the rate of return that the investment delivers.
According to the Moneysmart compound calculator, if $250,000 invested in the NDQ ETF over 10 years grew by an average of 10% per year, roughly half the return of the previous decade, it would become worth $648,000.
To reach $1 million, the investment would need to grow by close to 14.9% per annum. That's not as much as it has achieved in the past decade, but that'd still be an impressive return compared to most funds.
Why the NDQ ETF could keep rising
The Betashares Nasdaq 100 ETF is invested in many of the world's most impressive businesses, such as Microsoft, Apple, Amazon, Alphabet, Meta Platforms, Nvidia, Costco, Netflix, Intuitive Surgical, and ASML.
Many of these companies are global leaders in what they do, and some are leaders across multiple categories. For example, Alphabet is among the global leaders in internet search, cloud computing, online video, artificial intelligence, office software, self-driving vehicles, and internet advertising.
These businesses are so large and have built such impressive profit margins that they're able to make enormous profits from their global revenue base. They continue to invest in new products and services, which can help them unlock new earnings streams across the world, boosting this ASX ETF indirectly.
Another benefit for the NDQ ETF companies could be changes within the US. Falling interest rates could boost investors' willingness to pay for these companies. The incoming US President Trump also wants to reduce corporate taxes, which could help improve profits and push up valuations.
Overall, I think there are plenty of helpful factors that will support the NDQ ETF's returns in the coming years.
