What is the Nasdaq Composite Index?

The Nasdaq Composite is a stock market index that consists of the stocks that are listed on the Nasdaq stock exchange. To be included in the index:The stock must be a common stock of an individual company, so preferred stocks, exchange-traded funds (ETFs), and other types of securities are excluded.American depositary receipts (ADRs), real estate investment trusts (REITs), and shares of limited partnerships are eligible, however.The stock must have a specific number of both outstanding shares and shareholders.That's why there are so many stocks included in the Nasdaq Composite and why the number of stocks in the index often changes. The index is designed to be representative of the entire Nasdaq stock market, not just the largest companies.

What are stock market indexes?

A stock market index shows how investors feel an economy is faring. An index collects data from a variety of companies across industries. Together, that data forms a picture that helps investors compare current price levels with past prices to calculate market performance.

The S&P 500 (also known as the Standard & Poor's 500), a registered trademark of the joint venture S&P Dow Jones Indexes, is a stock index that consists of the 500 largest companies in the U.S. It is generally considered the best indicator of how U.S. stocks are performing overall. From another angle, the S&P 500, as an index, is a statistical measure of the performance of America's 500 largest stocks. In this context, the S&P 500 is a common benchmark against which portfolio performance can be evaluated.

Your Complete Guide to the Nasdaq Composite Index

By Matthew Frankel, CFP – Updated Mar 4, 2026 at 5:06 PM EST | Fact-checked by Parker Hicks

Key Points

Nasdaq Composite includes only Nasdaq-listed common stocks, excluding ETFs and preferred stocks.
It is market-cap weighted, meaning larger companies have more influence on index performance.
Investing via Nasdaq index funds offers broad tech sector exposure with streamlined management.

The Nasdaq is one of two major United States stock markets. Unlike its counterpart, the New York Stock Exchange (NYSE), the Nasdaq is best known for its concentration in technology and other high-growth stocks.

There are several stock indexes that follow Nasdaq stocks, and the broadest index is known as the Nasdaq Composite (^IXIC -0.93%). Along with the Dow Jones Industrial Average and S&P 500, the Nasdaq Composite is typically considered to be one of the three headline indexes that are used to show how the stock market is performing. However, it is often the least understood of the major indexes in terms of composition and how it works.

With that in mind, here's an overview of the Nasdaq Composite Index. We'll discuss how it works and how you can invest in it if you decide it's a good fit for your investment strategy.

An infographic showing why stocks are included — or not included — in the Nasdaq composite index. — Image source: The Motley Fool.

The Nasdaq Composite Index defined

The Nasdaq Composite is a stock market index that consists of the stocks that are listed on the Nasdaq stock exchange. To be included in the index:

The stock must be a common stock of an individual company, so preferred stock, exchange-traded funds (ETFs), and other types of securities are excluded.
American depositary receipts (ADRs), real estate investment trusts (REITs), and shares of limited partnerships are eligible.
The stock must have a specific number of both outstanding shares and shareholders.

That's why there are so many stocks included in the Nasdaq Composite and why the number of stocks in the index often changes. The index is designed to be representative of the entire Nasdaq stock market, not just the largest companies.

The Nasdaq Composite is one of the most widely followed stock indexes in the U.S. and is usually one of the three "headline" indexes that market commentators often cite -- along with the Dow Jones Industrial Average and the S&P 500.

Because the Nasdaq has a high concentration of companies in the technology sector -- particularly of the younger, fast-growing variety -- the Nasdaq Composite Index is often considered to be a good barometer of how well the tech market is performing.

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Exchange-Traded Fund (ETF)

An exchange-traded fund, or ETF, allows investors to buy many stocks or bonds at once.

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Financial Securities

A tradeable asset that holds monetary value.

Nasdaq-100: The other Nasdaq stock index

There's another Nasdaq-based index that is widely followed: The Nasdaq-100. This index, which is also market-cap weighted, is often confused with the Nasdaq Composite, but there's a big difference that's important to note.

Instead of including all of the common stocks listed on the Nasdaq exchange, the Nasdaq-100 only includes the stocks of the 100 largest nonfinancial companies listed. The 100 companies in the Nasdaq-100 make up more than 90% of the weight of the Nasdaq Composite Index. As you might imagine, the top 10 holdings of both indexes look very similar, as do their performance over time.

Just like with the Nasdaq Composite, there are mutual fund and ETF products that allow investors to track the Nasdaq-100 Index in their portfolio. Most notable is the Invesco QQQ ETF (QQQ -0.59%), which proportionally invests in the 100 index components for a low expense ratio of 0.2%.

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Should you invest in the Nasdaq Composite Index?

Investing in stock market indexes is a great idea if you don't have the time or desire to research and select individual stocks to invest in, or if you lack the experience and or risk tolerance necessary to properly evaluate stocks.

In fact, billionaire investor Warren Buffett, widely considered to be the most successful stock investor of all time, has said that index funds are the best investment choice for the majority of Americans. If you have the time and desire to invest in individual stocks properly, we encourage you to do so, but if you don't, there's nothing wrong with putting your investment portfolio on autopilot with index funds.

With that in mind, the Nasdaq Composite Index offers lots of exposure to tech heavyweights of today, such as Apple, Microsoft, and Amazon, while also giving investors some exposure to the tech heavyweights of tomorrow, thanks to its inclusion of every Nasdaq-listed common stock. As a result, the Nasdaq Composite Index could be a great investment choice if you don't yet feel comfortable choosing individual stocks or if you want broad exposure to the technology sector.

FAQs

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About the Author

Matt Frankel, CFP, is a contributing Motley Fool stock market analyst specializing in the real estate and financial sectors. Prior to The Motley Fool, Matt taught high school and college mathematics. He holds a bachelor’s degree in physics from the University of South Carolina, a master’s degree in mathematics from Nova Southeastern University, and a graduate certificate in financial planning from Florida State University. He won a SABEW award for coverage of the 2017 Tax Cuts and Jobs Act. He is also regularly interviewed by Cheddar, Globe St, The National Desk, and other TV networks and publications for his real estate, financial, stock market, and investing expertise.

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Matt Frankel, CFP has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Netflix, Nvidia, and Tesla. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.