The NASDAQ 100 index has been one of the best ways to invest into the United States and best-performing markets over the last 30 years. Since 1993 the NASDAQ 100 has averaged returns of about 13% per year. Understanding how to invest in the NASDAQ 100 is vital for any investor looking for global exposure, particularly to the technology sector. In this article, we explain what the NASDAQ 100 index is, its constituent companies, the best ways to invest in it, and its performance over time.
What is the NASDAQ 100 index?
How do I invest in the NASDAQ 100?
When is the best time to invest in the NASDAQ 100?
Should you invest in the index or pick shares?
Which companies are inside the NASDAQ 100?
What sectors are inside the NASDAQ 100?
What returns has the NASDAQ 100 earned?
How Stockspot can help you invest in ETFs
What is the NASDAQ 100 index?
The NASDAQ 100 is a stock market index composed of approximately the largest 100 non-financial companies listed on the NASDAQ exchange in the United States, including well-known companies like Apple, Microsoft, and Amazon.
The management of the index is overseen by Standard & Poor’s (a renowned ratings agency and index provider), who determines the weights of each of the companies and when companies are added or removed from the index.
How do I invest in the NASDAQ 100?
You have several options to invest in the NASDAQ 100. One approach is to purchase individual shares of companies listed in the NASDAQ 100 index. However, a more convenient and diversified approach is to invest in the entire index, giving you a stake in many, if not all, of the companies within the NASDAQ 100.
One of the easiest and most popular methods to invest in a share market index like the NASDAQ 100 is through Exchange Traded Funds (ETFs). These ETFs track the performance of the index and offer a cost-effective and less risky way to invest because of the diversification they provide (spreading your investments across numerous assets).
Furthermore, you can also consider investing in other renowned share market indices worldwide using ETFs. For instance, there are ETFs available that track the S&P 500, offering exposure to the largest 500 American companies or the Dow Jones or the S&P/ASX 200.
At Stockspot, we prioritise ETF investments for our clients, which cover various market indices, ensuring that the portfolios are well-diversified across a wide range of companies. One of the ETFs we offer is the NASDAQ 100 ETF.
Investing in the NASDAQ 100 index has demonstrated compelling returns of 13% per year over a 30-year period. Additionally, it offers several key advantages over active investing, where investors select individual shares:
- Lower costs: Index investing generally incurs lower costs compared to active investing by selecting individual shares.
- Tax efficiency: Investing in the entire market index tends to be more tax-efficient than engaging someone to actively buy and sell shares on your behalf.
- Reduced risk: The index typically presents lower risk than investing in individual shares, as it eliminates the reliance on a fund manager’s speculation on when to buy or sell or which companies to include. We have written extensively about why we don’t recommend stock picking, including Why we don’t recommend active funds We have also analysed Australia’s Best managed funds.
By investing in the NASDAQ 100 through ETFs, you directly benefit from the index’s growth over time, along with dividends from the constituent companies. This combination of factors makes the NASDAQ 100 an attractive option for long-term investors seeking stable returns and reduced risk.
When is the best time to invest in the NASDAQ 100?
For our clients, we highly recommend employing a dollar cost averaging strategy when investing in the NASDAQ 100 index. Dollar cost averaging is an effective method to enhance your investment outcomes. It entails gradually investing your money over several weeks or months.
By investing smaller amounts at regular intervals, you have the opportunity to purchase the market index at an average price over time. This approach allows you to capitalise on any market downturns (acquiring shares at a lower price) as well as benefit from market upswings if the markets rise. Implementing dollar cost averaging ensures a prudent and strategic approach to investing in the NASDAQ 100, ultimately positioning you for long-term growth and success.
Should you invest in the index or pick shares?
When it comes to investing your money, you have two distinct approaches: index investing (passive investing) or actively selecting individual shares.
Index funds or Exchange Traded Funds (ETFs) aim to closely mirror the performance of a specific market benchmark, or “index.” For example, an NASDAQ 100 ETF purchases all 100 companies within the NASDAQ 100 index.
Conversely, active fund managers, also known as “stock pickers,” attempt to outperform their benchmark or index by carefully selecting a limited number of companies or by trying to time the market.
However, over the past two decades, active investing has experienced a decline in popularity due to the increasing difficulty faced by fund managers in consistently outperforming the market index, mainly due to intensified competition and high fees.
With a growing number of fund managers in the industry, their efforts to outperform each other have become progressively challenging. Consequently, billions of dollars have shifted from active funds to passive funds that track the index.
Over a span of 20 years, index investing has proven to be the more reliable and consistent approach to investing. By opting for index investing, you position yourself for steady returns and a straightforward investment strategy.
Which companies are inside the NASDAQ 100?
The NASDAQ 100 index follows a market-size based approach, where a company’s weight within the index is proportionate to its total market value (i.e., share price multiplied by the number of tradable shares).
The number of companies in the NASDAQ 100 index is typically close to 100, but it can vary over time. Every quarter, the index undergoes adjustments as new companies enter, and others exit based on their market size. This process helps to ensure that underperforming companies that have become too small are removed from the index.
As of August 2023, the following are the ten largest companies in the NASDAQ 100 index, along with their relative sizes within the index:
| Name | Weight (%) |
| APPLE INC | 11.0% |
| MICROSOFT CORP | 10.3% |
| AMAZON.COM INC | 5.2% |
| NVIDIA CORP | 4.2% |
| META PLATFORMS INC | 3.8% |
| BROADCOM INC | 3.1% |
| ALPHABET INC (GOOGL) | 3.1% |
| ALPHABET INC (GOOG) | 3.0% |
| TESLA INC | 2.7% |
| COSTCO WHOLESALE CORP | 2.2% |
What sectors are inside the NASDAQ 100?
Investing in the NASDAQ 100 index grants you access to a diverse array of sectors that drive the economy. In the United States, the NASDAQ 100 index comprises a significant portion of technology and healthcare companies, along with other sectors such as consumer discretionary, communication services, and industrials.
By investing in a global share market index fund, you achieve an even broader spread of various sectors, as technology and healthcare play a more substantial role in other country share markets like the S&P 500, Dow Jones Industrial Average, or Nasdaq in the USA. This global exposure provides you with a well-rounded portfolio allocation to international shares across multiple industries and sectors, increasing your potential for long-term growth and resilience.
What returns has the NASDAQ 100 earned?
The NASDAQ 100 index has demonstrated robust returns, averaging around 13% per annum over the past three decades, despite facing some challenges along the way, including market fluctuations such as the dot-com bubble.
Investing in the NASDAQ 100 for the long term has historically yielded better returns compared to keeping your funds in a savings account. However it’s important to note that the NASDAQ 100 has endured large falls such as -33% in 2022, -41% in 2008 and -38% in 2002.
When considering an investment in the NASDAQ 100, it is essential to adopt a long-term perspective and diversify your portfolio by combining NASDAQ 100 shares with other assets like bonds, gold and Australian shares. These assets are all standard parts of a Stockspot portfolio.
You can access these additional assets through various index ETFs, which not only enhance diversification but also provide a smoother investment experience, helping you navigate the market’s ups and downs more effectively. A well-diversified portfolio is crucial for mitigating risk and maximising returns over time.
How Stockspot can help you invest in ETFs
Stockspot’s user-friendly platform for investing provides you with convenient access to a portfolio of low-cost index funds, also known as ETFs, that are tailored to your specific needs and preferences.
Our approach to wealth management is grounded in a proven and highly successful strategy, which is based on Nobel Prize-winning research.
At Stockspot, we embrace a straightforward philosophy: invest in a diversified blend of low-cost, low-risk products to harness the inherent potential of compound growth over the long term. The Nasdaq 100 ETF is one investment option we give clients as part of Stockspot themes.
