S&P 500, Nasdaq-100 or dividend funds?
Most long-term investors in stock index funds end up choosing among three kinds: S&P 500 funds, Nasdaq-100 funds and dividend funds. Over long stretches their returns have been surprisingly close. What really differs is what you own, how bumpy the ride is, and how much cash they pay along the way.
Key points
- S&P 500 funds own about 500 large U.S. companies across every industry. They're the usual "core" holding.
- Nasdaq-100 funds own 100 large non-financial companies listed on the Nasdaq, so they lean heavily toward technology. Higher growth potential, bigger drops.
- Dividend funds own companies chosen for paying, and often raising, dividends. More income now, usually less growth.
Side by side
| S&P 500 | Nasdaq-100 | Dividend | |
|---|---|---|---|
| What it holds | About 500 large U.S. companies, all sectors | 100 large non-financial Nasdaq companies, tech-heavy | Companies screened for dividends and quality |
| Example funds | VOO, IVV, SPY | QQQM, QQQ | SCHD, VIG, DGRO |
| Long-run record | 10.47% a year, 1926 to 2026 | 14.25% a year since 1985; about 10.65% since 1999 | 10.22% a year, 1973 to 2025 (dividend growers) |
| Dividend yield (example fund) | About 1.1% (VOO) | About 0.5% (QQQM) | About 3.2% (SCHD) |
| Yearly fee (example fund) | 0.03% (VOO) | 0.15% (QQQM) | 0.06% (SCHD) |
| Biggest risk | Falls with the whole U.S. market | Deep drops when tech falls | Can lag in strong growth markets |
Returns include dividends reinvested and come from different time spans, so treat them as rough history, not a forecast. The example funds are for illustration only, not recommendations.
S&P 500 funds: the default core
An S&P 500 fund spreads your money across about 500 of the largest U.S. companies, weighted by size. You get technology, health care, banks, energy and everything in between, in one low-cost fund. Because it tracks most of the U.S. stock market's value, many investors use it as the main holding and add other funds around it.
Nasdaq-100 funds: more growth, more swings
The Nasdaq-100 holds the 100 largest non-financial companies on the Nasdaq exchange, which tilts it strongly toward technology and other fast-growing businesses. That tilt has paid off for long periods: the index returned about 14.25% a year since 1985. It also cuts the other way. From 2000 to 2002 the index fell about 82%. A $10,000 investment would have dropped to about $1,800 and needed to grow more than fivefold just to get back to even. Even measured from 1999, near that peak, QQQ has averaged about 10.65% a year.
Many of the biggest Nasdaq-100 companies are also the biggest in the S&P 500, so owning both doubles up on them. Owning both isn't wrong; it means a larger bet on technology than either fund alone suggests.
Dividend funds: income and steadier companies
Dividend funds pick companies that pay dividends, and many focus on ones with long records of raising them. Those tend to be mature, profitable businesses, which can make the fund a bit steadier when markets fall. Ned Davis Research found that S&P 500 stocks that grew or started paying dividends returned about 10.22% a year from 1973 to 2025.
The trade-off is less exposure to fast growers that pay little or no dividend, so these funds can trail during strong growth markets. And in a regular brokerage account, those larger dividends are taxed every year, even if you reinvest them. Our DRIP guide explains how that works.
What $10,000 could become in 30 years
Using each kind's long-run figure from the table, with dividends reinvested and before taxes:
| Kind of fund | Yearly return used | After 30 years |
|---|---|---|
| S&P 500 | 10.47% | $198,300 |
| Nasdaq-100 (since 1999) | 10.65% | $208,200 |
| Dividend growers | 10.22% | $185,300 |
The endpoints are close. The paths to get there are not: the Nasdaq-100 path includes much deeper drops, and the dividend path pays out more cash along the way. Many planners use a more cautious 6% to 7% for long-range plans. See how compound growth works.
How people often combine them
- One fund: an S&P 500 fund on its own is a simple, widely used choice.
- Core plus a tilt: mostly S&P 500, with a smaller slice of Nasdaq-100 for more growth or a dividend fund for more income.
- Income focus: people closer to retirement sometimes shift more toward dividend funds and bonds.
Whatever the mix, the ones you can hold through a bad year matter more than the one with the best past record. Think about how you'd feel if a fund fell by half, because each of these has dropped sharply at some point.
Where to hold them
If you hold a dividend fund, consider keeping it in a 401(k) or IRA, where dividends aren't taxed each year. Growth-oriented funds that pay little in dividends create less yearly tax in a regular brokerage account. In Puerto Rico, check which funds your workplace plan offers, and see the Puerto Rico retirement guide for account limits.
Sources
For education only, not financial, tax or legal advice. Rules and limits change; check the sources and talk with a licensed professional about your own situation.