Today we are going to learn everything about the Nasdaq 100, a world famous index due to its high returns and well-known companies.
A great investment strategy is to invest in the Nasdaq 100 for long term, and I am about to explain you why.
Let’s start by understanding what the Nasdaq 100 is.
What is the Nasdaq 100?
The Nasdaq 100 is a stock market index made up of the 100 largest non-financial companies listed on the Nasdaq stock exchange.
It was born on Wall Street in 1985, and it has been growing ever since.
The main sectors of this index are Industrial, Technology, Retail, Telecommunication and Biotechnology. Most companies are American, although there are few international.
Currently the minimum market capitalisation for a company in the Nasdaq is 500 million dollars, and a daily volume of 100,000 traded shares.
It is one of the world’s most famous stock markets indices, rivaling other global indexes such as the S&P 500, Dow Jones Industrial average and Nikkei 225.
Nasdaq 100 companies
As its name suggests, this index contains 100 of the most important companies in the world.
Surely Amazon, Paypal, Netflix, Tesla and Microsoft sound familiar to you. All these companies belong to the Nasdaq 100 stock index.
In the following table I show you the main components of this index, ordered by their market capitalisation:
(in $ Billions)
|Advanced Micro Devices||63|
|Automated Data Processing||60|
As you can see many of the companies that we use in our day to day belong to Nasdaq. If you want to know the 100 companies that belong to this index, go to this web page.
If a company market cap falls, and another with a bigger capitalisation appears, it is replaced in the index. Companies like American Airlines and Wynn Resorts have recently dropped out.
By the way, if you don’t know what company Alphabet is, I’ll give you a hint: Google 🙂
A couple of years ago I also didn’t know that Alphabet was actually Google.
Evolution of the Nasdaq 100 price
In the Nasdaq 100 chart above you can see the evolution of the index since its inception. As you can observe, its trend is clearly bullish. And its growth seems endless.
The total growth it has had since 1985 has been 7952%, simply brutal.
In the image above you can see the great effect that the “dot com” bubble had in 2000. The Nasdaq 100 grew 275% in the years 1998 and 1999. This means that in just two years its price quadrupled!
In 1998 and 1999 the price of the Nasdaq 100 multiplied by 4 due to the “dot com” bubble
In those years, people believed that internet companies were going to have infinite earnings, and they were willing to pay anything. What happened next is well known.
Reality prevailed. It was discovered that most companies did not have a profitable business model and many companies went bankrupt, going from being worth billions of dollars to 0 in a matter of months. Famous companies like Yahoo were close to disappear.
The impact on the Nasdaq 100 index can be seen in the graph, as it went from 4400 points in March 2000 to 1100 points at its lowest in September 2001. That is a 75% drop.
So it is important not to invest in companies or indices when they are inflated by a bubble. Fundamental analysis helps us avoid these errors.
In recent years the growth of the Nasdaq 100 has been great, reaching its all-time high of 9722 points in February 2020.
Nasdaq 100 historical return
This global index has performed spectacularly since its inception.
As we have just seen, from 1985 until now Nasdaq had a growth of 7952%. And this calculation does not take into account the dividends that companies distribute to their shareholders. If we take into account the dividends, the yield increases even more.
Nasdaq historical average annual return is 15%
Just by investing periodically in this index you would have obtained a 15% return. It’s brutal! Investors who put their money in this index were highly rewarded.
This performance is better than other indices such as the FTSE 100 and the S&P 500.
Let’s see the profits that you would have obtained if you (or your parents) had invested 10,000 pounds in Nasdaq in 1985.
As you see, those 10,000 pounds would have turned into into 1.5 million. Now you would be a millionaire investor!
This happens thanks to the great performance of this index, and to our friend the compound interest.
I would like to point out that when you invest in Nasdaq, you don’t get a 15% return every year. Prices vary depending on the economy and the latest financial news. Some years it goes up and others goes down.
That is why it is important to invest for many years, to reduce risks and increase returns.
Note that currency exchange has not been taken into account to simplify the calculation.
Nasdaq 100 share price
If you want to know what is the price of the Nasdaq 100 index today, in the last session it reached 9298 points. Currently it is approaching its maximum value, which is the 9722 points achieved on February 19th 2020.
As you can see in the graph, in February and March there was a big drop due to the Coronavirus crisis. The index fell 28% from its top.
In April it has experienced a great recovery. Its price has risen 33%!
You can check the Nasdaq 100 share price in real time on the yahoo finance website.
Should I invest in this index?
This index is based on the largest companies in the world. Companies like Facebook, Amazon and Apple have big earnings today, and they will most likely continue to do well in the future.
Furthermore, by investing in the Nasdaq 100 you will also invest in the new technology companies that appear in the future, since when their market cap is large enough they will be added to the index.
Nasdaq 100 index has obtained a 15% return for 35 years, so I recommend investing in it
No one knows what the price will be in one year. But given its historical average return, Nasdaq 100 forecast is very good.
If you invest in this index periodically and for long term, it is very likely that you will get good results.
To me Nasdaq 100 is a better option than bonds and commodities (for example oil), and more complex products such as cryptocurrencies. It is worth mentioning that lately Nasdaq 100 futures have become popular.
I sincerely recommend avoid trading these financial instruments, and just focus on long-term investing in the stock market.
How to invest in the Nasdaq 100?
Investing in the Nasdaq 100 Index is easy. There are many index funds and ETFs that copy the behavior of this index.
Many brokers and platforms allow you to buy the Nasdaq 100 through an index fund or ETF. I recommend DEGIRO, which is a broker with very low fees and a great platform to trade.
If you don’t know them yet, you can sign up for DEGIRO here
You can learn everything about this broker in my super guide on DEGIRO.
The Nasdaq 100 is one of the best indexes to put your money. Investing in it is a great investment strategy for your portfolio.
More articles related to investing in the stock market
If you want to read more information about investing in stocks, I recommend the following articles:
- Index funds, the best way to start investing
- Initial guide to invest in stocks
- DEGIRO, analysis of the best broker
This is it for today, I hope you liked my analysis of this wonderful index. Any questions you have, please use the comments section below, I will be happy to help you 🙂