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.
Exchange-Traded Fund (ETF)
Financial Securities
Related investing topics
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.
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