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The Nasdaq is a US exchange on which stocks are bought and sold, whereas the Dow Jones is an index that tracks 30 major stocks listed on US exchanges. The Nasdaq Composite is an index that tracks most of the stocks listed on the Nasdaq exchange.
Here’s how the Nasdaq index and Dow Jones compare in size, value, diversification and performance.
What's the difference between a stock exchange and an index?
A stock exchange is an electronic marketplace on which stocks and other securities are traded. An index tracks market performance by tracking the performance of a group of stocks.
Stocks can be tracked in more than one index. An index can group stocks by sector, industry, region or any other characteristic. Think of a stock exchange as Spotify and an index as a playlist.
Nasdaq vs. Nasdaq Composite
The Nasdaq Composite — sometimes confusingly called “the Nasdaq” — is a stock market index that tracks most of the stocks listed on the Nasdaq stock exchange.
When people talk about investing in a Nasdaq fund or exchange-traded fund (ETF), they’re likely referring to a fund that holds stocks listed on the Nasdaq Composite. As an index, it’s easier to compare to the Dow Jones.
To be included in the Nasdaq Composite, a stock must be a common stock and listed exclusively on the Nasdaq exchange. Preferred stocks and ETFs are not included. The index is supposed to represent the whole Nasdaq, not just its largest stocks.
The Dow Jones
The Dow Jones is an index that tracks 30 prominent US companies. It’s weighted by price, which means each stock impacts the index’s performance in proportion to its price. The companies in the Dow Jones are chosen by representation from the Wall Street Journal and S&P Global, which is somewhat subjective.
Popular stocks in the Nasdaq Composite and Dow Jones
The Nasdaq index is larger than the Dow Jones by a pretty substantial margin. The Dow Jones tracks only 30 stocks, while the Nasdaq Composite tracks more than 2,500 stocks.
Nasdaq index vs. Dow Jones: Which is worth more?
The Nasdaq Composite’s market capitalization is likely close to the Nasdaq stock exchange’s market cap of $23.46 trillion USD. Meanwhile, the Dow Jones has a market capitalization of $10.35 trillion USD.
When you consider that the Dow Jones tracks just 30 stocks and the Nasdaq Composite tracks a couple thousand stocks, you get a sense of how large stocks in the Dow Jones are.
Nasdaq index vs. Dow Jones: Which is more diversified?
If you invest in a fund that mimics the performance of the Dow Jones index, you’re exposed to the performance of 30 big players on US exchanges. Investing in a fund that mimics the performance of the Nasdaq Composite gives you access to those stocks plus a range of smaller companies. This can be riskier, but there might be an opportunity for greater growth.
The Nasdaq index tracks a lot of technology stocks, with stocks in this sector made up of half of the Nasdaq exchange. It’s spread out across other sectors as well, but technology is the key one. Tech is the largest sector represented in the Dow Jones, with 20% of stocks falling into this sector.
Platforms that let you invest in the Nasdaq and Dow Jones
These trading apps allow you to invest in companies within the indices or funds that track these companies.
The Nasdaq Composite index has performed better than the Dow Jones historically, although you shouldn’t take this to mean that it will in the future. It is more diversified and gets you access to blue-chip stocks as well as smaller players in the market. The Dow Jones gets you access to large companies, particularly technology companies.
The Nasdaq index is a well-diversified set of shares alone, although you’d want to add some global diversification by investing in some stocks in other countries.
The Dow Jones could be paired with other index funds or ETFs as it’s only 30 companies and doesn’t offer much diversification.
What are the top holdings in the Dow Jones and Nasdaq index?
Dow Jones
Nasdaq Composite
Apple
Apple
Microsoft
Microsoft
Johnson & Johnson
Amazon
UnitedHealth
Tesla
Visa
NVIDIA
How to invest in the Dow Jones and Nasdaq Composite
Find a Nasdaq and Dow Jones ETF or mutual fund. Some index funds track the performance of all stocks on the index, whereas others only track a certain number of stocks or are weighted towards specific stocks. Select the fund that best suits your investment goals.
Open a stock trading account. To invest in ETFs or mutual funds, you’ll need to open a trading account with a broker or trading platform. Keep in mind that some index funds may only be available on certain brokerages or platforms. The providers in our comparison table let you invest in Canadian and international stocks. Some of the index funds above are listed on the Toronto Stock Exchange (TSX).
Deposit funds. You’ll need to deposit funds into your account to begin trading. You may need to pay a foreign conversion fee to convert your Canadian dollars into US dollars, so you can buy US stocks.
Buy the index fund. Once your money has been deposited, you can buy the index fund. Most ETFs or index funds come with a small annual fee to cover fund management expenses.
Compare Dow Jones and Nasdaq trading platforms
These trading apps allow you to invest in companies within the indices or funds/ETFs that hold stocks in Nasdaq and Dow Jones companies.
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Bottom line
The Nasdaq is a stock exchange in the US, known for listing a high proportion of technology stocks. The Nasdaq Composite tracks most of the stocks listed on the Nasdaq. The Dow Jones is an index that tracks 30 major US stocks. Dow Jones stocks are hand picked, whereas Nasdaq Composite stocks include all stocks that meet certain basic criteria.
A committee made up of the Wall Street Journal and S&P Global representatives decide which stocks are included in the Dow Jones. Eligible stocks cannot be in the transportation or utility industries and must be in the S&P 500.
The Dow or Dow Jones is short for the Dow Jones Industrial Average, named Wall Street Journal editor and creator of the index, Charles Dow.
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Zoe was a senior writer at Finder specialising in investment and banking, and during this time, she joined the Women in FinTech Powerlist 2022. She is currently a senior money writer at Be Clever With Your Cash. Zoe has a BA in English literature and a Diploma for Financial Advisers. She has several years of experience in writing about all things personal finance. Zoe has a particular love for spreadsheets, having also worked as a management accountant. In her spare time, you’ll find Zoe skating at her local ice rink.
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