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Understanding the Nasdaq Composite Index

The Nasdaq Composite is a well-known market index that tracks nearly every stock in the Nasdaq exchange. Learn more here.

One of the ways investors and researchers track the performance of U.S. stock markets is with market indexes. The Nasdaq Composite, one of the big three alongside the Dow Jones Industrial Average (DJIA) and the S&P 500, comprises several of the largest companies in the worldwide Nasdaq stock exchange. Because of this, it’s often used for index and mutual funds by investors.

In this article, we’ll outline what the Nasdaq Composite index is, what types of companies make it up, and what criteria its parent company uses to select them. We’ll also detail some ways you can go about adding it to your portfolio as an investor.

Key Takeaways

  • The Nasdaq Composite comprises almost every stock on the Nasdaq stock exchange.
  • The Composite index uses a market-cap weighting system, allowing more influence from companies with higher value of outstanding shares.
  • Much of the weighted influence on the index is in the information technology sector, including companies like Microsoft, Nvidia, Apple, Google, and Amazon.
  • A common way to invest in the Nasdaq Composite is via index funds, mutual funds, and ETFs.

What Is the Nasdaq Composite?

Founded in 1971, the Nasdaq Composite (IXIC) is a broad market index that includes nearly every stock — roughly 3,000 from various sectors and industries — on the Nasdaq exchange. Because of its volume and sweeping inclusion of many types of companies, the index is often used as a measuring stick of the U.S. economy’s performance. As its name suggests, the index is overseen by Nasdaq, Inc.

The Nasdaq Composite index uses a market-capitalization weighting system. In simplest terms, this means that the companies with the largest number of outstanding shares hold the most weight in the index. Therefore, their value wields more influence over the index’s overall value.

Securities in the Nasdaq Composite Index

Due to its immense size, the Nasdaq Composite comprises securities and corporations from a range of sectors, industries, and locations, including information technology, health care, financial services, energy, and more. According to the index’s methodology document, this includes:

  • Common stock
  • American depositary receipts (ADRs)
  • Real estate investment trusts (REITs)
  • Limited liability companies
  • Limited partnership interests
  • Ordinary shares
  • Units of beneficial interest

Because the index uses market cap weighting, however, the stocks with the most influence over it are American companies in the technology industry, including household names such as Microsoft, Apple, Meta, and Amazon. Per Nasdaq’s fact sheet on the Composite, here were the top ten constituent companies in the index as of March 28, 2024:

CompanyTicker SymbolWeight
Microsoft Corp.MSFT11.78%
Apple Inc.AAPL9.98%
Nvidia CorporationNVDA8.51% Inc.AMZN7.06%
Meta Platforms Inc.META4.02%
Alphabet Cl. A CmnGOOGL3.35%
Alphabet Cl. C CapGOOG3.25%
Broadcom Inc.AVGO2.31%
Tesla Inc.TSLA2.11%
Costco WholesaleCOST1.22%

How to Invest in the Nasdaq Composite

Its inclusion of a diverse and comprehensive listing of securities on the Nasdaq makes the Nasdaq Composite a common target for investors to add to their portfolios. However, it’s important to note that it’s not possible to invest in an index directly, as it just exists to track a specific set of securities in a market.

Perhaps the most straightforward method of investing in the Nasdaq Composite is via professionally managed funds that aim to closely match or beat the index’s performance, including index funds, mutual funds, and exchange-traded funds (ETFs). These allow you to gain an indirect ownership stake of the securities within the index and gain diversification across the many industries and types of stocks it offers.

There are various funds available that follow the Composite index from an array of providers. Here are four options from well-known companies:

  • FNCMX — Fidelity Nasdaq Composite Index Fund
  • ONEQ — Fidelity Nasdaq Composite Index ETF
  • VTSAX — Vanguard Total Stock Market Index Fund Admiral Shares
  • NASDAQ: QQQ — Invesco QQQ Trust Series 1

Another method of adding securities within the index to your portfolio is finding individual companies or stocks listed on it and adding them to your portfolio. Because of the index’s size, it would be nearly impossible and unrealistic to invest in everything. Rather, this strategy allows you to use the index as a guide to see which companies or assets you may want to consider folding into your investment portfolio.

Before investing, however, it’s a good idea to consult a financial advisor on which method makes the most sense for you and your goals. They’ll be able to go over factors such as your risk tolerance and time horizon to help you make an effective decision.

Frequently Asked Questions

What is the all-time high for the Nasdaq Composite?

As of this article’s most recent update, the all-time high for the Nasdaq Composite was on May 24, 2024, when it reached 16,920.79. Keep in mind, though, that this number is ever-changing. For an up-to-date reading, we recommend visiting Nasdaq’s milestone page for the index.  

Is it a good idea to invest in the Nasdaq Composite?

Deciding if it’s a good idea to invest in the Nasdaq Composite depends on your needs and goals for your portfolio. One of the benefits it offers is its widespread exposure to various types of securities, anywhere from common stock to REITs, as well as its inclusion of companies from different regions and sectors. As noted, if you’re unsure whether to add it to your portfolio, it’s invaluable to reach out to a qualified advisor or investment management professional for their expertise.

What is the difference between the S&P 500 and the Nasdaq Composite?

Like the Nasdaq Composite, the S&P 500 is another well-known index that finds its way into investor portfolios. The two, however, have significant differences in their overall scale and scope. The Composite holds around 3,000 securities from the Nasdaq stock exchange, whereas the S&P 500 holds only 500 of the most successful companies based solely in the U.S.

Because the S&P 500 is a more narrowly defined segment of the largest companies in the U.S., finance professionals often use it as a benchmark to monitor the economy’s performance. The Nasdaq Composite, which holds many of the same companies, has a similar role; however, its heavy weighting in the tech sector, evidenced by its top ten constituents, makes it more of a barometer for those markets.