The Nasdaq is an index that gets referred to daily on television, in the papers, and on social media. It is typically one of the main indices that people who follow the markets look to for guidance on the overall markets. There is a good deal of discussion about this index and we wanted to take a minute and explain “What is the Nasdaq?”
The Nasdaq Composite Index, or the Nasdaq in short, tracks the more than 2500 stocks that trade in its index. This index is much bigger than its counterparts, the S&P 500 and Dow Jones Industrial Average, which track 500 and 30 companies respectively. The companies listed on the Nasdaq cover a wide range of industries, however, the largest percentage of them are technology-related. The index is composed of over 50% technology companies. One other differentiator of the tech-laden Nasdaq is from other indices is the fact that includes companies that are incorporated both within and outside of the United States.
Due to its significant weighting in technology companies, the Nasdaq is an index that is used to track this sector. The large concentration of companies in tech provides investors with a better indication of performance for that sector than many of the other benchmarks available, such as the Dow or S&P. Although this index is one of the largest, we have discussed thus far, keep in mind it still will not give you a full picture for your portfolio as a whole.
Having a diversified portfolio means having assets in many different industries, sectors, countries, and company size. This is not an exhaustive list by any means and diversification can take place in many ways and these are just a few. Keep in mind, assuming proper asset allocation, many of the assets in your portfolio will not benchmark well to the Nasdaq. The Nasdaq is not generally a benchmark that is looked at to guide investors on how the overall markets are performing, like the S&P may be relied upon by some. Its tech-heavy composition does make it a good candidate to evaluate the performance of your technology holdings, making a good benchmark for that.
Knowing the composition of your portfolio will assist you in building a benchmark(s) that would be best suited to evaluate your portfolio and how your assets are performing to the markets in general. The Nasdaq Composite is one benchmark that could be used in this evaluation, in addition to others. It is key to make sure that you are comparing this benchmark to the correct assets in your portfolio.
We would be happy to discuss your situation regarding the benchmarks being used to evaluate your portfolio and what indices would be most relevant to you. Just contact us, Mitlin Financial, at (844) 4-MITLIN x12 to schedule a time for this review. Be sure to share this article with friends, family, and business acquaintances who might be interested too. We look forward to helping you, and them, get on the right path and stay there.
This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.