The Nasdaq Composite (^IXIC 2.02%) is one of the U.S. stock market's three major indexes, tracking the tech-dominant companies listed on the Nasdaq Stock Exchange. After a less-than-stellar 2022 (to put it lightly) for the Nasdaq, it's had an impressive 2023, up over 27% year to date as of June 8.
With such an admirable rally, investors may be wondering if now is the time to invest in the index or if they missed the boat. The short answer is no, you didn't miss the boat.
Why the sudden surge?
The recent surge in the Nasdaq can be credited to a trifecta: Easing inflation, a potential pause in Federal Reserve interest rate hikes, and interest surrounding artificial intelligence (AI).
A large reason for the Nasdaq's struggles in 2022 was investors fleeing younger, less proven, and sometimes unprofitable companies for more established ones that could better weather economic storms that came their way. Things are far from peachy keen with the U.S. economy right now, but it seems investors are starting to become a little more optimistic.
Along with a change in market sentiment, the Nasdaq can thank a handful of AI-focused stocks for boosting its 2023 returns so far.
Data by YCharts
A better question to ask
Instead of asking if now is the time to invest in the Nasdaq, a better question is: How much can you afford to consistently invest in it? If you're interested in investing in the Nasdaq but want to wait until the "right" time, you may always be waiting.
You never want to find yourself trying to time the stock market. It's a fool's game that is almost impossible to do consistently over the long run. You may be "right" occasionally, but you don't want to go down that rabbit hole. Instead, you want to focus on consistency -- it takes the crown over time.
A good strategy for investors who want to take a more passive approach or hedge against market swings is using dollar-cost averaging. When you dollar-cost average, you invest a fixed amount in stocks at set times, regardless of stock prices at the time.
Knowing what you can invest in the Nasdaq makes implementing dollar-cost averaging much easier. For example, if you decide to invest $500 monthly, you could break it down to $250 bi-weekly or $125 weekly investments. Being on a set schedule helps you with consistency and removes some of the urge to want to try timing the market.
A convenient way to invest in the Nasdaq
The most popular way to invest in the Nasdaq is via a Nasdaq-100 exchange-traded fund (ETF). The Nasdaq-100 index contains the 100 largest non-financial companies on the Nasdaq Stock Exchange. It's much more concentrated than the Nasdaq Composite.
The Invesco QQQ Trust (QQQ 1.54%) is an ETF that tracks the Nasdaq-100 and is the second most traded ETF in the U.S. Although it's tech-heavy, it consists of companies from many different sectors:
- Technology: 59%
- Consumer discretionary: 19%
- Health care: 6.2%
- Industrials: 4.8%
- Telecommunications: 4.6%
- Consumer staples: 4%
- Utilities: 1.1%
- Energy: 0.6%
- Not classified: 0.2%
- Basic materials: 0.2%
- Real estate: 0.2%
Sectors aside, one downside to the Invesco QQQ Trust is that it's very top-heavy, with Microsoft and Apple accounting for over 25% of the fund. That doesn't necessarily scream diversified, but those are also two companies you can rarely go wrong with leading the way.
The nature of the companies in the Nasdaq-100 means it's more prone to volatility, but in recent times, it's far outperformed the S&P 500 over the long run. That doesn't mean it'll continue to happen by any means, but it's worth noting as more tech industries (like AI, cloud, and cybersecurity) become more widespread.
Data by YCharts
If time is on your side, you shouldn't be too concerned with the current prices. Instead, trust that it'll produce good returns over time and know that volatility along the way is inevitable. If time isn't on your side, the Nasdaq-100 may not be the most stable choice.
