The NASDAQ Composite Index

The NASDAQ Composite is the broadest of the major indices, tracking over 3,000 stocks listed on the NASDAQ exchange. It's your window into America's technology and innovation sectors. [DEFINITION] NASDAQ Composite: A market-capitalization-weighted index including all domestic and international stocks listed on the NASDAQ stock exchange—over 3,000 companies. ### Why NASDAQ Matters The NASDAQ Composite is heavily weighted toward technology, making it: - **A tech sector barometer**: When tech thrives, NASDAQ leads - **More volatile**: Higher growth potential but bigger swings - **Growth-oriented**: Many companies reinvest profits rather than paying dividends [EXAMPLE] During the 2020 pandemic, NASDAQ rose 43% while the Dow gained only 7%. Tech companies benefited from work-from-home trends, showcasing NASDAQ's tech concentration. ### NASDAQ Composite vs. NASDAQ 100 These are often confused but differ significantly: **NASDAQ Composite** (~3,000 stocks) - Includes ALL NASDAQ-listed companies - Contains many small and mid-cap stocks - Broader representation **NASDAQ 100** (100 stocks) - Only the 100 largest non-financial NASDAQ companies - Excludes banks and financial firms - More concentrated and tradeable (via QQQ ETF) [TIP] If you want tech exposure, the NASDAQ 100 (QQQ ETF) is often more practical than trying to invest in the full Composite. It captures most of the big movers. ### The Tech Giants Driving NASDAQ These companies often comprise 40-50% of the NASDAQ 100's weight: - **Apple (AAPL)**: ~12% weight - **Microsoft (MSFT)**: ~11% weight - **NVIDIA (NVDA)**: ~8% weight - **Amazon (AMZN)**: ~6% weight - **Meta (META)**: ~5% weight - **Alphabet (GOOGL/GOOG)**: ~4% each class [KEY] NASDAQ's tech concentration is a double-edged sword. It dramatically outperforms during tech booms but suffers steeper declines during tech selloffs, as seen in the 2000 dot-com crash (-78%). ### Historical Performance Patterns NASDAQ's performance tells a story of boom and bust: - **1995-2000**: Rose over 500% during dot-com bubble - **2000-2002**: Crashed 78% when bubble burst - **2009-2021**: Rose over 1,000% during longest bull market - **2022**: Fell 33% as interest rates rose [EXERCISE] If NASDAQ is at 15,000 and the "Magnificent Seven" tech stocks (representing 40% of the index) collectively drop 5%, approximately how much does the index fall, assuming other stocks are flat? |ANSWER| 40% × 5% = 2% decline, or about 300 points (15,000 × 0.02 = 300). [WARNING] NASDAQ's historical ~10% annual return masks extreme volatility. The index took 15 years (2000-2015) to recover its dot-com peak. Never assume past tech gains will continue uninterrupted. [SCENARIO] You're deciding between investing in the S&P 500 (SPY) or NASDAQ 100 (QQQ). Consider: Do you believe technology will continue outperforming? Can you stomach 30-40% drawdowns? If you're young with a long horizon and high risk tolerance, QQQ might suit you. If you want stability, SPY offers broader diversification.