Thanks to its large exposure to the rapidly expanding technology sector, the S&P 500 has delivered phenomenal returns over the last decade. In fact, including dividends, the US’s flagship index is up 313% since the start of October 2015. That’s the equivalent of a 15.2% annualised return, putting the FTSE 100’s 8% over the same period to shame.
To put this in terms of money, investing £500 each month at these rates is the difference between having £139,294 and £91,473 when starting from scratch. So, the question now becomes, will the index repeat itself over the next decade, and if not, how much money should a 40-year-old expect to have by 2035?
Latest expert projections
Long-term forecasts are notoriously challenging to get right. That’s because there are so many influencing external factors, many of which are impossible to predict. Having said that, the current long-term consensus for the S&P 500 isn’t as promising as it once was.
With uncertainty over the impact of tariffs and the return on investment for AI infrastructure, some leading financial institutions have been revising down their growth expectations for the US index.
For example, BlackRock has placed its growth figure at mid-single digits. Meanwhile, Vanguard is even less optimistic, citing an expected compounded return of 3.3% to 5.3% for US equities. And at the same time, Northern Trust has stated they expect “more modest equity returns over the next 10 years”.
That certainly doesn’t sound promising. And if the S&P 500’s gains do drop to the middle of current projections at around 8%, then by 2035, investors may be in a similar position to FTSE 100 investors over the last decade.
Beating the market
While 8% is hardly terrible, stock pickers can do better. Admittedly, this is easier said than done and involves taking on more risk. However, by successfully identifying the companies that can outperform even during a weaker economic environment, investors can potentially unlock superior returns.
One such business might be CrowdStrike (NASDAQ:CRWD). With global digital threats growing exponentially, the need for top-tier cybersecurity solutions is only expected to follow. And we’re already seeing evidence of this with the group’s momentum accelerating in recent years as it progresses towards its 2027 free cash flow margin targets of 30%.
The group’s reputation did take a bit of a hit recently following a botched software update that crashed IT systems worldwide. Yet despite this outage, customer attrition was minimal, suggesting that even with ample competition, clients are reluctant to swap to rival platforms – a sign of technological superiority.
Of course, should a similar incident occur again in the future, the lack of reliability could be enough to push customers to switch. In other words, CrowdStrike still has ample execution risk, especially as competitors like SentinelOne are constantly looking for opportunities to encroach on its market share.
The bottom line
Even with a less optimistic outlook, there are plenty of S&P 500 stocks with the potential to shine over the next decade.
In my opinion, CrowdStrike is one of them. However, there’s no denying the valuation is quite demanding. So, while I’m not rushing to buy today, should a slowdown emerge and stock prices fall, CrowdStrike will be at the top of my shopping list. And it’s not the only stock I’ve got my eye on.
