Index Investing
The Nasdaq Composite Index

The Nasdaq Composite Index represents all the stocks that trade on the Nasdaq stock market. The recent surge in popularity of technological stocks has launched the Nasdaq into the spotlight. Consequently, the composite index has become one of the premier indexes in the world.

Don't confuse the Nasdaq composite with the Nasdaq 100, which is made up of the 100 largest non-financial companies on the Nasdaq stock market.

Created By: The National Association of Securities Dealers (NASD) in 1971

Number of Companies: 4,000+

Types of Companies: Contains all the companies that trade on the Nasdaq. Most are technology and Internet-related, but there are financial, consumer, bio-tech and industrial companies as well.

Selection Criteria: If a stock trades on the Nasdaq, it is included in the index.

How it's Calculated: The Nasdaq Composite is a capitalization-weighted index, with each company weighting being proportionate to its market value.

Advantages: The Nasdaq Composite is heavily weighted in technology and Internet stocks. As such, the companies listed in the Composite are considered to have high growth potential.

Disadvantages: Companies on the Nasdaq tend to be more speculative and risky than those listed on the New York Stock Exchange (NYSE). Because of this, the Nasdaq composite index is much more volatile than other broad indexes. The advantage of being mostly tech can also be a disadvantage. That is, when tech suffers, so does this index.

Investing: There are several index funds that track the Nasdaq composite such as the Fidelity Nasdaq Composite Index Fund. The QQQQ, formerly known as the QQQ, is the Exchange-Traded Fund (ETF) that tracks the Nasdaq 100.