A Beginner's Guide To Nasdaq Etf Investment

The Nasdaq-100 index is a collection of the 100 largest non-financial stocks trading on the Nasdaq exchange. It includes tech giants such as Microsoft, Amazon, Apple, and Tesla. One of the most popular ways to invest in the Nasdaq is through an exchange-traded fund (ETF). ETFs are a basket of stocks that trade on stock exchanges, allowing investors to buy shares in a diversified portfolio without needing a large sum of money. There are several ETFs that track the Nasdaq-100 index, such as the Invesco QQQ Trust (ticker: QQQ) and the Invesco Nasdaq 100 ETF (QQQM). These ETFs offer low expense ratios and have outperformed the Nasdaq-100 index in recent years. When investing in Nasdaq ETFs, it is important to consider factors such as fund size, cost, and investment strategy to make informed decisions.

ETFs trade like stocks

Exchange-traded funds (ETFs) are a type of investment fund that can be traded on exchanges, much like stocks. They are a basket or collection of stocks, bonds, or other securities in a single fund, which can be bought and sold during market hours. ETFs are bought and sold like common stocks on a stock exchange, and their prices fluctuate throughout the day as the ETF is bought and sold. This is in contrast to mutual funds, which trade only once a day after the market closes.

ETFs are an affordable way to access a wide variety of asset classes and provide investors with a diverse mix of assets, including domestic and international stocks, bonds, and commodities. They are also considered more tax-efficient than mutual funds, as any profit made from an ETF is not subject to capital gains tax until the investor sells their shares.

ETFs can be purchased through online brokers, traditional broker-dealers, or even in retirement accounts. Many online investing platforms, retirement account provider sites, and investing apps offer commission-free trading for ETFs.

ETFs can be structured to track specific investment strategies, and there are various types available, including:

• Income generation
• Speculation
• Price increases
• Hedging or offsetting risk in an investor's portfolio

Some popular ETFs that track the Nasdaq-100 index include:

• Invesco QQQ ETF
• IShares Nasdaq-100 UCITS ETF (DE)
• Fubon Nasdaq-100 ETF (622)

ETF costs

ETFs are traded like stocks, so you'll need to buy shares in them from a broker. You'll typically pay a commission each time you buy or sell an ETF, though this is not always the case. The smaller your investment and the more frequently you trade, the more impact these commissions will have.

The operating expense ratio (OER) is another cost to consider. This is the percentage of fund assets taken out annually to cover fund expenses. For example, if you have $10,000 in an ETF with a 0.25% expense ratio, you'll pay about $25 per year in expenses. The OER is an important figure to look at before buying an ETF, as a small difference in annual expenses can add up over time.

The bid-ask spread is another cost to be aware of. There is normally a difference, or spread, between the bid price (the highest price a buyer is willing to pay for a share) and the ask price (the lowest price a seller is willing to accept for a share). The amount of the spread varies from one ETF to another and tends to be greater for ETFs with low trading volume. If you plan to hold an ETF for less than a year, this cost can be more important than the OER.

ETFs also have management fees and other expenses. Passively managed ETFs have lower fees than actively managed funds, which vary from fund to fund. Actively managed funds pay an expert (portfolio manager) to pick stocks, whereas passively managed funds simply track an index.

In summary, when considering the costs of investing in an ETF, it's important to look at the commission structure, the operating expense ratio, the bid-ask spread, and the management fees. These fees can vary significantly between different ETFs and can have a significant impact on your overall returns.

ETF types

There are several types of ETFs, and they can be categorized in a number of ways. Firstly, ETFs can be classified as either equity ETFs or non-equity ETFs. Equity ETFs can be further divided into international ETFs, sector ETFs, dividend ETFs, and market-cap index ETFs.

International ETFs own stocks in companies headquartered outside of the United States. Sector ETFs own stocks in companies pursuing similar types of business or offering similar products and services. For example, the Vanguard Financials (VFH) ETF focuses on bank stocks. The Invesco QQQ ETF, which tracks the Nasdaq-100, is a sector ETF that comprises 100 of the largest non-financial companies on the Nasdaq.

Dividend ETFs own stocks in companies that have a history of paying dividends to shareholders. Market-cap index ETFs select and weight stocks based on the size of each company's market capitalization—the total value of its shares.

Non-equity ETFs, on the other hand, hold non-equity securities such as bonds, commodities, and currencies. Bond ETFs provide regular income to investors, with the distribution depending on the performance of the underlying bonds. Commodity ETFs invest in raw materials like agricultural goods, energy, and precious metals. Currency ETFs track the performance of a single currency or a basket of multiple currencies.

ETFs can also be categorized as passive or actively managed. Passive ETFs aim to replicate the performance of a broader index, such as the S&P 500, or a more specific targeted sector or trend. Actively managed ETFs, on the other hand, have portfolio managers who make decisions about which securities to include in the portfolio. These ETFs may have higher fees for investors.

Some other types of ETFs include:

• Smart Beta ETFs: These ETFs use a rules-based system for choosing investments and are a blend of active and passive investing.
• Inverse ETFs: These earn gains from stock declines by shorting stocks.
• Leveraged ETFs: These seek to return multiples of the underlying investment's performance and use debt and derivatives to amplify returns.

Nasdaq-100 index

The Nasdaq-100 Index (NDX) is a stock market index comprising 100 of the largest non-financial companies listed on the Nasdaq Stock Market based on market capitalization. It includes companies from a variety of sectors, such as technology, healthcare, consumer goods & services, and industrials.

The index is a modified capitalization-weighted index, meaning the stocks' weights are based on their market capitalizations, with rules in place to cap the influence of the largest companies. It is constructed using a modified capitalization method, which uses the individual weights of included items according to their market capitalization. This weighting limits the influence of the largest companies and balances the index among all members.

The Nasdaq-100 Index is reviewed and adjusted quarterly to ensure the distribution requirements are met. The index includes well-known companies such as Microsoft, Apple, Amazon, Tesla, and Meta.

There are multiple ways to invest in the Nasdaq-100 Index, including exchange-traded funds (ETFs), mutual funds, futures, options, and annuities. ETFs are a popular choice for investors as they offer the benefits of a diversified portfolio and typically track a pool of assets. They are also easily traded on stock exchanges, just like individual company stocks.

One of the most popular ETFs that track the Nasdaq-100 Index is the Invesco QQQ ETF, which has been available since 1999 and is managed by Invesco. This ETF trades under the ticker symbol QQQ.

Overall, the Nasdaq-100 Index offers investors exposure to some of the largest and most innovative non-financial companies in the world.

Nasdaq-100 constituents

The Nasdaq-100 is a stock market index comprising 100 of the largest non-financial companies listed on the Nasdaq stock exchange. The index was launched on 31 January 1985 and includes companies from a range of sectors, including technology, retail, telecommunications, biotechnology, healthcare, transportation, media and services. Notably, it does not include companies from the energy, finance, or real estate sectors.

The companies that make up the Nasdaq-100 are reviewed annually in December, with Nasdaq comparing them to other companies not in the index and making adjustments accordingly. The index is also rebalanced quarterly if certain conditions are met. For example, if one company is worth 24% of the index, or if companies with a weighting of at least 4.5% make up 48% or more of the index.

Some of the current constituents of the Nasdaq-100 include:

• Costco Wholesale Corp
• Advanced Micro Devices Inc
• Intuitive Surgical Inc
• Texas Instruments Inc
• Booking Holdings Inc
• Applied Materials Inc
• Honeywell International Inc
• Palo Alto Networks Inc
• Automatic Data Processing Inc
• Vertex Pharmaceuticals Inc
• Micron Technology Inc
• Mondelez International Inc
• Cadence Design Systems Inc
• Marvell Technology Inc
• Regeneron Pharmaceuticals Inc
• Crowdstrike Holdings Inc
• Marriott International Inc/MD
• Constellation Energy Corp
• O'Reilly Automotive Inc
• PDD Holdings Inc ADR
• Roper Technologies Inc
• NXP Semiconductors NV
• Charter Communications Inc
• Monster Beverage Corp
• American Electric Power Co Inc
• Diamondback Energy Inc
• Old Dominion Freight Line Inc
• Keurig Dr Pepper Inc
• Verisk Analytics Inc
• Cognizant Technology Solutions Corp
• Lululemon Athletica Inc
• GE HealthCare Technologies Inc
• Microchip Technology Inc
• IDEXX Laboratories Inc
• Coca-Cola Europacific Partners PLC
• Take-Two Interactive Software Inc
• ON Semiconductor Corp
• Warner Bros Discovery Inc
• Super Micro Computer Inc
• ARM Holdings PLC ADR

There are several ways to invest in the Nasdaq-100, including through ETFs, mutual funds, options, futures, and annuities. One popular option is the Invesco QQQ ETF, which has been available in the US since 1999 and trades under the ticker symbol QQQ. This ETF is one of the most actively traded exchange-traded funds in the country.

Frequently asked questions