The U.S. stock market is the largest stock market in the world, accounting for 43% of the $106 trillion global equity market last year. U.S. stocks have created substantial wealth over time, something Warren Buffett attributes to a unique combination of commerce and innovation. Currently, 17 of the 20 largest companies in the world are U.S. companies.
The U.S. stock market is divided in different ways, but its performance is primarily measured through three major financial indexes: the S&P 500 (^GSPC +1.20%), the Dow Jones Industrial Average (^DJI +1.79%), and the Nasdaq Composite (^IXIC +1.52%).
Those indexes share certain stocks in common, but investors view them differently. Read on to see how all three indexes performed over the last decade as of Jan. 15, 2024.
SNPINDEX: ^GSPC
Key Data Points
S&P 500
The modern S&P 500 was launched in 1957, but its roots date back to a precursor index created in 1923. The S&P 500 measures the performance of 500 large U.S. companies representing a blend of value stocks and growth stocks. The index accounts for about 80% of domestic equities by market capitalization, so it's widely regarded as the best benchmark for the entire U.S. stock market.
The five largest components of the S&P 500 are detailed below:
- Microsoft: 7.1%
- Apple: 6.8%
- Alphabet: 3.9%
- Amazon: 3.5%
- Nvidia: 3.3%
The S&P 500 returned 163% over the last decade, compounding at 10.2% annually. Investors can get direct exposure to the index with the Vanguard S&P 500 ETF (VOO +1.23%). Warren Buffet has often recommended that strategy because very few investors manage to outperform the S&P 500. That includes professional money managers. In fact, less than 15% of all large-cap funds beat the S&P 500 over the last decade.
DJINDICES: ^DJI
Key Data Points
Dow Jones Industrial Average
The Dow Jones Industrial Average measures the performance of 30 large U.S. companies, all of which are typically included in the S&P 500. Selection is limited to companies that meet three criteria: excellent reputation, sustained earnings growth, and widespread interest among investors. For that reason, the Dow Jones is commonly regarded as a benchmark for blue chip stocks.
The five largest components of the Dow Jones are detailed below:
- UnitedHealth Group: 9.4%
- Microsoft: 6.7%
- Goldman Sachs: 6.6%
- Home Depot: 6.2%
- Amgen: 5.3%
The Dow Jones returned 131% over the past decade, compounding at 8.7% annually. Investors can get direct exposure to the index with the SPDR Dow Jones Industrial Average ETF (DIA +1.81%). While the index has underperformed the S&P 500 over the past decade, it has also been less volatile than the S&P 500 due to its blue chip composition.
NASDAQINDEX: ^IXIC
Key Data Points
Nasdaq Composite
The Nasdaq Composite measures the performance of more than 3,000 companies, all of which trade on the Nasdaq Stock Exchange. The vast majority of its constituents are U.S. companies, though the index does provide a small amount of international exposure. The Nasdaq is heavily weighted toward the high-growth technology and consumer discretionary sectors, and it's commonly considered a benchmark for growth stocks.
The five largest components of the Nasdaq are detailed below:
- Apple: 12.3%
- Microsoft: 11.5%
- Alphabet: 6.7%
- Amazon: 6.5%
- Nvidia: 5.1%
The Nasdaq returned 264% over the last decade, compounding at 13.8% annually. Investors can get direct exposure to the index with the Fidelity Nasdaq Composite ETF (ONEQ +1.55%). As a caveat, while the index beat the S&P 500 over the last decade, it has also been more volatile than the S&P 500 due to its highly concentrated composition.
Patience is key to turning a profit in the stock market
Investors can learn an important lesson by analyzing historical stock market returns. All three major financial indexes have suffered multiple corrections and two bear markets during the past decade, but the S&P 500 and the Dow Jones has more than doubled in value, and the Nasdaq has more than tripled.
To make comparisons easier, I've detailed the returns across all three indexes in the chart below.
|
Stock Market Index |
10-Year Return |
Annualized Return |
|---|---|---|
|
S&P 500 |
163% |
10.2% |
|
Dow Jones Industrial Average |
131% |
8.7% |
|
Nasdaq Composite |
264% |
13.8% |
Data source: YCharts. Chart by Author. As of Jan. 15, 2024.
Here's the bottom line: The three major U.S. stock market indexes were profitable investments over the last decade, and investors have no reason to expect a different outcome over the next decade. That means any of the index funds discussed above are likely to be moneymaking investments over the next 10 years (and beyond).
