The Nasdaq 100 is not a well-diversified index. Nor is it a U.S. equity index.


The Nasdaq 100 acts as if it were a representative index of the U.S. along with the Dow Jones Industrial Average and the S&P 500 (and it is), but it is by no means a standard passive index (it is a passive index, but it is too specific in nature). Nor is it an index of U.S. stocks only.

See the PDF linked below for the sector percentages of the constituent stocks (the data is a bit out of date as of 2018).
As you can see, there is a messed up bias towards high tech.

The characteristics of the Nasdaq 100 can be summarized as follows.

  • 9 of the 100 companies are outside the U.S.
  • Only stocks listed on Nasdaq
  • Financial companies are not included
  • The index is skewed toward high-tech stocks.
  • Nasdaq itself is a venture-backed stock exchange

In other words, the Nasdaq 100

  • Not strictly a U.S. equity index
  • is not a sector-diversified index

and is therefore an index with characteristics that make it unsuitable for long-term diversified investments in the U.S.
(Conversely, the inclusion of non-U.S. growth companies in the index may be an advantage, depending on how you use it.)

I mainly use the Nasdaq 100 for CFDs because

Because the price movements are violent.

This is the reason why I prefer CFD’s with stocks that have a lot of price movement.
Also, the spread is a relatively better ratio than the S&P 500.

On the other hand, I have not chosen the Nasdaq 100 as a long-term investment stock.
I am sure I have never recommended it in the past.
(Of course, some people are free to bet on a long-term accumulation in the Nasdaq 100.)

The S&P 500 is an index that is independent of any particular market (albeit US-dependent), whereas the Nasdaq has the following characteristics (Excerpts from the characteristics just listed)

  • Only stocks listed on NASDAQ
  • Does not include financial companies
  • Leaning toward high-tech stocks
  • Nasdaq itself is a venture-backed stock exchange

Paraphrasing these.

  • The Nasdaq 100 can stagnate even when the U.S. is growing at a high rate if more companies with good performance come from outside the Nasdaq market.
  • In a sector biased, financial-dominated, or high-tech disadvantaged market environment, the Nasdaq 100 could stagnate even while the U.S. is growing. This is precisely the type of market environment that will come with high interest rates.
  • In a venture-favorable environment (even though it is an index of the top 100 stocks), the Nasdaq 100 can stagnate.

Here’s what I mean.
It is a very interesting index, but I think it is important to understand that the Nasdaq is more like a technology active index than a passive index.

The High Dividend Stock Index and the Nasdaq 100 are indexes that are more suited for timing investments.

Of course, I am not saying, “The Nasdaq market must be strong for the next 30 years! That’s why I’m betting on the Nasdaq 100!” You are free to do so. However, I think it is more common to choose S&P 500 or Global Equity Index as the main target for long-term accumulation investment.