Nasdaq Investment vs. Fixed Indexed Annuity (1999–2025) – A Performance Comparison
Background and Assumptions
This analysis compares two strategies for a $100,000 investment made at the start of 1999, held through May 2025:
Direct Nasdaq Composite Investment (Total Return): Invested directly in the Nasdaq Composite Index, with dividends reinvested. This reflects the total return of the Nasdaq Composite (including price changes and dividend income). The Nasdaq Composite Index (ticker ^IXIC) tracks ~3,000 stocks listed on the Nasdaq exchange, heavily weighted toward technology stocks (ycharts.com). Notably, the Nasdaq’s dividend yield is very low (on the order of ~0.5–1% per year) (slickcharts.com), so price appreciation dominates its total returns.
Fixed Indexed Annuity (FIA) Linked to Nasdaq: A hypothetical FIA crediting strategy tracking the Nasdaq Composite Price Index (price returns only, excluding dividends). We assume an annual point-to-point crediting method with:
100% Participation Rate (credits the full percentage gain of the index each year),
0% Floor (no losses in years the index declines – the account value doesn’t decrease in down years),
No Cap on gains (no upper limit to the interest credit in up years),
No fees, withdrawals, or allocation changes (for a pure comparison).
Under these FIA terms, at each policy anniversary the interest credited for that year equals the index’s price return if positive, or 0% if the index had a negative year. Any credited interest is locked in to the account and cannot be lost in future downturns (allianzlife.com). This idealized scenario shows the maximum potential FIA performance under uncapped 100% participation (some FIAs impose caps or <100% participation to cover the cost of providing downside protection; however there are products that don’t have caps and offer 100% participation rates).
Year-by-Year Performance Comparison
The table below shows the annual performance of the Nasdaq Composite vs. the FIA, year by year, from 1999 through 2024 (full calendar years), plus the partial 2025 year-to-date (YTD) through early May 2025 for completeness. For each year it lists: the Nasdaq’s price return (index-only) and total return (including dividends), the FIA credited interest rate (based on price return, floored at 0%), and the year-end account value of $100,000 initial investment under each strategy.
Notes: Nasdaq returns for 1999–2024 are based on historical data (macrotrends.net. “Nasdaq Total Return” is estimated by adding the effect of dividends (Nasdaq’s dividend yield has been ~0.5–1% annually (slickcharts.com); thus total returns are only slightly higher than price returns). FIA credited rate equals the Nasdaq price change if positive, or 0% if negative, each year. Year-end values assume $100K initial principal. The 2025 YTD values reflect index performance through about May 5, 2025 (Nasdaq down ~7.6% so far in 2025 (macrotrends.net)). The FIA does not credit partial-year gains, so its account value as of May 2025 remains at the 2024 year-end level (and it incurs no loss from the YTD drop).
Final Outcomes (1999–2025)
By the end of 2024, and even more so by May 2025, the difference in outcomes is dramatic:
Direct Nasdaq Investment (Total Return): Grew the $100,000 to about $1.07 million by end of 2024. After the ~−7.6% pullback in early 2025, it stands around $991,000 (nearly ten times the initial investment). This is a +891% cumulative return (i.e. nearly +900% total gain) over the 26+ year period. In annualized terms, that’s roughly a ~9.1% compound annual growth rate (CAGR) for 1999–May 2025.
FIA (Nasdaq-Linked, 0% Floor, Uncapped 100% Par): Grew the $100,000 to an astounding $7.15 million by end of 2024 – about 7× the direct investment’s value. As of May 2025 (with the index down YTD), it remains $7.15 million (no loss). Literally over 70-fold increase of the initial principal. That translates to an ~17.5% annualized return over the period.
To put it plainly: under these assumptions, the FIA strategy turned $100K into over $7 million, while a direct Nasdaq investment reached about $1 million.
Analysis and Key Insights
Performance Drivers: The FIA’s dramatic outperformance stems from its downside protection in severe bear markets and full participation in bull markets. Notably:
During the 2000–2002 dot-com crash, the Nasdaq Composite fell about –39%, –21%, and –31% in consecutive years (macrotrends.net). A $100K Nasdaq investment peaked near $186K in 1999 then shrank to roughly $62K by end of 2002. In contrast, the FIA never dropped in those years – it locked in the +85.6% gain from 1999 (macrotrends.net) and simply stayed flat through 2000–02 (floor at 0%). By 2002, the FIA account was still $185.6K, roughly 3× the value of the direct investment (which had to climb out of a deep hole).
In 2003, the Nasdaq rebounded +50% (macrotrends.net). Both strategies gained about +50% that year, but the FIA was compounding off a much larger base (≈$185K vs. $62K for direct). End of 2003, the FIA had ~$278K vs. the Nasdaq portfolio ~$95K.
The 2008 financial crisis saw Nasdaq –40.5% (macrotrends.net); the direct portfolio dropped from ~$129K to ~$77K, while the FIA held steady around $369K (no loss). Again, the subsequent 2009 rally (+43.9% (macrotrends.net)) lifted both, but the FIA was growing from a far higher level.
Even the recent 2022 bear market (Nasdaq –33% (1stock1.com)) didn’t set back the FIA: the direct Nasdaq investment fell from ~$847K to ~$571K that year, whereas the FIA stayed at ~$3.87M. The 2023 boom (+43% (1stock1.com)) then propelled the FIA to $5.56M vs. the direct portfolio $825K.
In essence, the FIA benefited from an asymmetric return profile: it captured all the big up years without the damage from big down years. The direct investment, despite benefitting slightly from dividends and no caps, was dragged down by each major crash having to recuperate losses. The Nasdaq’s long-term growth is tremendous (nearly 10× money even with two huge crashes), but the FIA’s sequence of returns was far more favorable.
The Cost of Missing Dividends: One might expect the direct investment to have an edge because it earns dividends. However, for Nasdaq stocks this edge is minimal – the Nasdaq Composite’s total return index was only ~21% higher than its price index by 2025 (e.g. the total return index was 21,716 vs. price index 17,844 in May 2025) (indexes.nasdaqomx.com, macrotrends.net). Over 26 years, that dividend boost compounded to roughly a ~0.5–0.8% extra return per year. This pales in comparison to the value of avoiding the catastrophic losses in bad years. In other words, the FIA’s 0% floor (protecting principal in down markets) was far more valuable than reinvesting the Nasdaq’s tiny dividends.
Considerations: It’s important to note that this FIA scenario is idealized – some FIAs often impose caps or limit participation rates (especially for volatile indices like Nasdaq) to balance the cost of guarantees; however there are options that don’t have caps nor have limits in participation rates (which is what we prefer to offer). In practice, an uncapped 100% Nasdaq-linked FIA might not be offered in this exact form (or the insurer would hedge it with options, indirectly passing on some cost). We also assumed no fees or surrender charges that could reduce returns. Nonetheless, the exercise illustrates the power of index-linked upside with downside protection. The FIA essentially provided a free put option each year: if the index dropped, the portfolio didn’t lose – a feature that, in hindsight, supercharged growth through multiple boom-bust cycles.
Summary: Over 1999–2025, the uncapped 100% participation FIA outperformed a direct Nasdaq investment by an enormous margin. The direct investment, while achieving a strong ~9–10% annual return (turning $100K into roughly $1M), was eclipsed by the FIA’s ~17–18% annualized return (turning $100K into over $7M). The FIA’s ability to “reset” at 0% in bad years meant it never had to spend time recovering losses – every growth year started from a high-water mark. The direct investment, conversely, had to endure volatile drawdowns and spend years just getting back to its prior peaks.
In conclusion, under the given assumptions, the FIA linked to the Nasdaq Composite delivered far superior results, highlighting how eliminating downside can profoundly affect long-term compounding. This illustrates the trade-off between taking full market risk vs. accepting moderated returns with protection – in this case, full participation with a floor produced a remarkable outcome. Investors should weigh that while Nasdaq’s long-term returns are high, the journey matters: avoiding deep losses can dramatically improve the ending wealth even if it means forgoing a small amount of income (dividends) along the way (allianzlife.com).
Sources: Historical Nasdaq index values and returns from Nasdaq/Nasdaq OMX (macrotrends.netmacrotrends.net); characteristics of FIAs from Allianz Life (educational materials) (allianzlife.com); Nasdaq dividend yields and total return insights from YCharts/SlickCharts (slickcharts.com, indexes.nasdaqomx.com).
