If you’re investing in US stocks, then you’ve probably come across the S&P 500 and the NASDAQ. But what’s the difference between the S&P 500 and the NASDAQ and which should you invest in? Let’s dive in and take a closer look.
The S&P500 and the NASDAQ are both indices of stocks and there’s a lot of overlap between the 2. Many of the top 10 stocks are the same, so if you’re invested in both, you may not be as diversified as you think. Here are the top 10 stocks in both indices.
The best investment for you depends on your investment goals. Here’s a summary of what to consider:
The S&P 500 contains 500 of the biggest companies in the US whereas the NASDAQ Composite contains more than 3,000 stocks. However some NASDAQ companies are very small and the total value of the NASDAQ is lower than the S&P 500.
The S&P is worth an eye-watering $40.15 trillion and contains around 28% tech stocks. In contrast, the NASDAQ composite index is worth a grand total of around $19.4 trillion despite having over 3,000 stocks and contains around 50% tech stocks. That’s because it includes a large proportion of smaller tech companies.
Both the NASDAQ and the S&P 500 are extremely concentrated, with the largest companies making up a big proportion of the total market value of the index.
For the NASDAQ, the top 20 companies are mainly tech giants and account for 47% of the overall value of the index. Likewise, the S&P 500 is extremely concentrated towards the biggest companies with just 4 companies making up nearly 21% of the S&P at the end of 2021.
Quality investing is where investors look for certain criteria in their investments. It’s based on management credibility as well as balance sheet stability and financial performance.
The S&P arguably contains a higher proportion of quality stocks than the NASDAQ index. That’s because they need to meet a strict verification criteria to be included in the S&P 500.
If you want to invest purely in quality stocks then you could choose the S&P quality index which is a pre-vetted group of quality companies which are selected based on return on equity and other financial ratios.
Both indices are fairly diversified as you will spread your investment risk across many underlying US companies. But both indices are also heavily weighted towards the bigger companies. For example, if you invest purely in the S&P 500 index then 21% of your investment will be in the top 4 biggest companies in the index.
Instead, most experts recommend that you also diversify your investments across different asset classes and different geographical areas. Then you won’t be too badly affected if one business fails.
These trading apps allow you to invest in companies within the indexes directly or to invest in funds/ETFs.
The best NASDAQ or S&P 500 index fund will depend on your circumstances. Some workplace pension schemes limit the amount of funds you can choose from so you will need to select the closest you can find to your needs. Other funds offer different fund fees or transaction costs and have slightly different selection criteria.
Here are some of the best performing S&P 500 and NASDAQ funds according to JustETF:
| Fund | Icon | 5-year performance (to February 2024) | 1-year performance (to February 2024) | Link to invest |
|---|---|---|---|---|
| Invesco S&P 500 (SPXP) |  | 100.34% | 16.39% | Invest with XTBCapital at risk |
| Xtrackers S&P 500 Swap (XSPX) |  | 99.39% | 15.91% | Invest with XTBCapital at risk |
| Vanguard S&P 500 (VUSA) |  | 97.44% | 15.78% | Invest with XTBCapital at risk |
| iShares Core S&P 500 (CSP1) |  | 97.42% | 15.78% | Invest with XTBCapital at risk |
| SPDR S&P 500 ETF (SPX5) |  | 97.09% | 15.74% | Capital at risk |
| HSBC S&P 500 (HSPX) |  | 96.87% | 15.39% | Capital at risk |
| Fund | Icon | 5-year performance (to February 2024) | 1-year performance (to February 2024) | Link to invest |
|---|---|---|---|---|
| Amundi NASDAQ 100 (ANXG) |  | 164.88% | 35.86% | Capital at risk |
| Lyxor NASDAQ 100 ETF (NASL) |  | 163.76% | 35.78% | Capital at risk |
| iShares NASDAQ 100 (CNX1) | | 161.79% | 35.15% | Invest with eToroCapital at risk |
| Invesco NASDAQ 100 (EQSG) | | N/A | 35.97% | Capital at risk |
| Xtrackers NASDAQ 100 (XNAQ) | | N/A | 35.27% | Capital at risk |
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
Whether the NASDAQ or S&P 500 is best for you will depend on your circumstances and the other funds and assets in your portfolio.
If you want more exposure to potential growth stocks then the NASDAQ index might be a good choice with its emphasis on tech stocks. If you prefer a more general US index fund then the S&P might be right for you as you’ll be invested in 500 of the biggest companies in the US.
| S&P 500 | NASDAQ | ||||
|---|---|---|---|---|---|
 | Apple | | Apple | ||
 | Microsoft | | Microsoft | ||
 | Amazon | | Amazon | ||
 | Facebook inc A |  | Tesla | ||
 | Alphabet Inc A (Google) |  | Nvidia |
These trading apps allow you to invest in companies within the indexes directly or to invest in funds/ETFs.
When comparing the NASDAQ and S&P 500 indices, it’s important to remember that there’s a big overlap. If you want to be invested in the biggest US companies, then you might want to choose the S&P 500. In contrast, if you want to invest in up and coming tech companies then you might plump for the tech heavy NASDAQ Composite index.
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
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