The Journey of Nasdaq Composite INDEX

What is NASDAQ Composite Index? A Brief of Overview about this market index.

Hello, Wise Wealth readers! Let's continue exploring the most important market indexes with our "TOP TRIO" saga. This is the 2 out of 3 blog posts focusing on the three most important indexes in the US. Let's get into it!!

The Nasdaq Composite Index

The Nasdaq Composite index was launched on Feb 5, 1971 (investopedia) and is a stock market index that consists of the stocks that are listed on the Nasdaq stock exchange and it is one of the most important indices in the world, and it measures the performance of more than 3,500 stocks. In fact, this index is well known for its large number of technology related companies: about half of the index is made up of companies from the tech industry.

The index is composed of both domestic and international market, and it is a highly-watched index to know how the financial markets are doing overall, in fact if you want to know how the tech industry is doing you can easily know that by seeing the performance of the Nasdaq composite index.

The Nasdaq also uses a market-capitalization weighting approach assigning greater proportionate value to companies with the higher market capitalization.

Now here are the 10 most heavily weighed securities in the Nasdaq Composite Index:

1. Apple (AAPL): 13.79%

2. Microsoft (MSFT): 11.44%

3. Amazon (AMZN): 6.04%

4. NVIDIA (NVDA): 4.72%

5. Tesla Inc (TSLA): 3.75%

6. Alphabet Class A (GOOGL): 3.21%

7. Alphabet Class C (GOOG): 3.21%

8. Meta Platforms (META): 2.87%

9. Broadcom (AVGO): 1.63%

10. Pepsico (PEP): 1.15%

Source: (INVESTOPEDIA)

Two important things to keep in 🧠

First, the only difference between Alphabet Inc class A and Alphabet Inc class C is that Class A comes with voting rights and Class C does not, but they are both worth the same.

Secondly, we are learning about the Nasdaq Composite index that is listed on the Nasdaq stock exchange but the market index is the Nasdaq Composite index.

So today we’re learning about an Index called Nasdaq Composite, not about the stock exchange.

Having covered the essential about the Nasdaq Composite index: Let’s talk about the performance of it and how you can invest in it !!

The Nasdaq composite Index is highly dominated by the technology sector, this index’s performance tends to be a little more volatile than the SPY 500 and the Down jones.

As you can see in the graph above, the index had some tough years. Here are some major events to consider:

1. Dot-com bubble: It happened mainly because of overvalued internet stocks, back then the Nasdaq composite surged from 1,000 points in 1995 to more than 5,000 in 2000. But in early 2001, the dot-com stock bubble started to burst.

   The NASDAQ peaked at 5,048.62 points on March 10 2002 and the same year the index plummeted by 76.81% until it reached a low of 1,139.90 points on Oct. 4, 2002.

2. The Financial crisis of 2008: Also known as the Housing bubble. This crisis had a significant impact on the index, since it affected mostly the financial and technology sectors.

   From its peak in October 2007 to its low point in early 2009, the index lost approximately 55% of its value.

3. Coronavirus crash: The Coronavirus crash didn’t impact this index as much as the other market indexes, since many tech companies benefited from the accelerated shift to remote work, online shopping and digital services.

   Source: macrotrends

   The index had a growth at the end of 2020, closing that year 43.64% positive.

   Some interesting facts: Overall, this index had produced an annualized return of 14.66% over the 10 years through July 7, 2023

   This year (2023) this index has returned so far 29.20%, this means the tech industry has done pretty well this year.

   As you can see know the stock market has ups and downs, so it is important to invest in something you believe in and that you know you will be able to hold onto during tough times.

To go deeper here are the 10 top tech companies with the best return in this year, from January 1 to August 31.

1. NVIDIA (NVDA) 237.7%

2. Palo Alto Networks (PANW) 74.4%

3. Lam Research (LRCX) 67.1%

4. Salesforce (CRM) 67.0%

5. Adobe (ADBE) 66.2%

6. Broadcom (AVGO) 65.1%

7. Advanced Micro Devices (AMD) 63.2%

8. Arista Networks (ANET) 60.9%

9. Semiconductor (ON) 57.9%

10. Materials (AMAT) 56.9%

Source (Bank rate)

Data as of August 31, 2023

As you have seen, this year the tech industry has done pretty well, however something important to keep in mind (as we just saw) is to analyze more than a year to really see how the industry is doing overall. I would recommend 10 to 15 year performance to realistically have any idea.

Two ways to invest in the Nasdaq Composite Index💰

After doing your research and deciding to invest in this index, here is one to do so.

1. Index Fund: Fidelity® NASDAQ Composite Index® Fund

   

2. ETF: Fidelity Nasdaq Composite Index ETF (NASDAQ: ONEQ)

To finish this post

I would like to say that I prefer to invest in the SPY 500 which I already talked about in an earlier post, because it gives more diversification and it is less volatile. However every investor has different perspectives and goals.

I hope you are finding this content useful and please let me know what you think about it, since my mainly goal here is that you learn while I also learn too!!

Today we finish with this empowering quote 👇🏻

“RISK COMES FROM NOT KNOWING WHAT YOU ARE DOING”

-Warren Buffet

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