Performance of the Nasdaq indexes - Deepstash

Performance of the Nasdaq indexes

Nasdaq's indexes have outperformed the S&P 500 (it tracks large-cap stocks), and the Dow Jones Industrial Index (the 30 largest US companies).

It outperformed because both Nasdaq indexes lean heavily into tech, consumer services, and health care - the top-performing industries in recent years.

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MORE IDEAS FROM What is the Nasdaq? Understanding the global stock exchange that's home to the fastest-growing, most innovative companies

Nasdaq is technically a dealer market. Both buyers and sellers trade with a market maker in a specific stock or security.

  • 3,889 listed companies trade on Nasdaq and represent 10 broad sectors or industry groups, mostly in technology, consumer services, and health care.
  • Nasdaq's listed companies combined are worth $11.23 trillion.
  • Over 4.5 billion shares are traded daily on Nasdaq.
  • Companies pay $47,000 to $163,000 in fees to be listed on Nasdaq.

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Nasdaq overview

The Nasdaq (National Association of Securities Dealers Automated Quotations) is the oldest and largest electronic stock market globally. All its buying and selling occurs electronically and not on a physical trading floor.

It is the second-largest stock exchange globally based on the market capitalisation of its listed companies.

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  • The Nasdaq Composite Index tracks 2,790 Nasdaq securities - almost everything except mutual funds, preferred stocks, and derivative securities.
  • The smaller Nasdaq 100 Index focuses on the largest, non-financial companies listed on the Nasdaq with over half in the tech sector.

The Nasdaq Composite is more influential and widely followed, while the Nasdaq 100 is viewed by traders and investors interested in futures, options, and exchange-traded funds.

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  • The Nasdaq was created in 1971 by the National Association of Securities Dealers (now known as FINRA).
  • At first, it was just a quotation system but began adding trading and transactional systems.
  • In 2002, Nasdaq became an independent, publicly-traded company.
  • In 2006, it became an SEC-registered national securities exchange.
  • In 2007, it combined with the OMX, the Scandinavian exchange group, to form the Nasdaq OMX group.

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Both the Nasdaq Composite and Nasdaq 100 use the same modified market capitalization weighting method: Each share's closing price (LSP) is multiplied by the total shares outstanding (TSO).

Share weights calculation: Each security's market capitalization is divided by the total capitalization of all index securities. Share weights for each stock are then multiplied by that stock's closing price. The total is divided by an index divisor that accounts for market fluctuations. The result is the Nasdaq average for that day.

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While you can try to duplicate the Nasdaq 100 or the Nasdaq Composite with individual stock purchases, it would be more efficient to invest in an index fund.

  • The Invesco Unit Investment Trust QQQ ETF is the most popular Nasdaq index fund and tracks the Nasdaq 100.
  • Fidelity's Nasdaq Composite Index ETF is a popular exchange-traded fund for investing in the entire Nasdaq composite.
  • For a mutual fund, look at the Fidelity Nasdaq Composite Index Fund.

Nasdaq is also a public company that you can invest in. It trades as Nasdaq Inc.

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ETFs vs Index & Mutual Funds

They are all basket of assets you are trading in bulk:

  • Mutual funds are actively managed, meaning their fees are rather high.
  • Index Funds are just tracking a segment of the market. Low fees but are only priced once a day. It's the preferred passive investment strategy. 
  • ETF are like a combination of the two. They are more versatile & usually track industries, commodities etc. ETFs are more akin to equities than to mutual funds. They can be bought like individual stocks. 

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Diversification

A diversified portfolio ensures that your capital is spread across a variety of investments. It ensures that you are not reliant on a single investment or industry for all your rewards. Fortunately, there are multiple asset classes to invest your money into, such as equity or bonds. It reduces your exposure to market risk and smooths out the peaks and valleys of investment trips. As a result, diversification is the guidewire that stops your investment portfolio from going off the rails especially when there’s a downturn in the market.

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Every investor’s principal goal is to reduce all possible investment risks while simultaneously increasing investment opportunities. Learn all about diversification and untold secrets. This will help anyone start their investment journey.

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What Is an Inverse ETF?

An inverse ETF is an exchange traded fund (ETF) constructed by using various derivatives to profit from a decline in the value of an underlying benchmark. Investing in inverse ETFs is similar to holding various short positions, which involve borrowing securities and selling them with the hope of repurchasing them at a lower price.

An inverse ETF is also known as a "Short ETF" or "Bear ETF."

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