A Beginner's Guide To Investing In Nasdaq Funds

The Nasdaq-100® is an index of the top 100 non-financial companies listed on the Nasdaq stock exchange. It is designed to be a representative snapshot of the entire Nasdaq stock market, rather than just its largest companies. Nasdaq offers investors a platform to trade thousands of US companies, including global giants such as Microsoft, Apple and Tesla. There are multiple ways to invest in the Nasdaq-100®, including ETFs, mutual funds, options, futures and annuities. A popular and effective way to invest in the Nasdaq is via an exchange-traded fund (ETF) or an index tracker fund. These are 'passive' investments that rely on computer algorithms to replicate the Nasdaq-100® index.

Exchange-traded funds (ETFs)

An exchange-traded fund, or ETF, allows investors to buy many stocks or bonds at once. Investors buy shares of ETFs, and this money is used to invest according to a certain objective. For example, if you buy an S&P 500 ETF, your money will be invested in the 500 companies in that index.

ETFs are either passive or active. Passive ETFs (also known as index funds) track a stock index, such as the S&P 500. Active ETFs, on the other hand, hire portfolio managers to invest their money with the goal of beating an index's performance.

ETFs are great for diversification, as they provide access to a variety of stocks, bonds, and other assets, typically at minimal expense. They are also more liquid and easier to buy and sell than mutual funds.

• Open a brokerage account.
• Choose your first ETFs. For beginners, passive index funds are generally the best option as they are cheaper than actively managed funds, and most actively managed funds don't beat the benchmark index over time.
• Let your ETFs do the hard work for you. It's important to remember that ETFs are generally designed to be maintenance-free, so refrain from the urge to frequently check your portfolio and make emotional, knee-jerk reactions to major market moves.

• Invesco QQQ Trust (QQQ)
• Invesco Optimum Yield Diversified Commodity Strategy No K-1 ET (PDBC)
• Vanguard S&P 500 ETF (VOO)
• Schwab U.S. Mid-Cap ETF (SCHM)

Index funds

• Have a goal for your index funds: Before investing, it is important to know what you want your money to do for you. If you are looking for a short-term place to park your money and earn interest, you may be more interested in certificates of deposit, savings accounts, or money market funds. However, if you want to let your money grow slowly over time, particularly if you are saving for retirement, index funds may be a great investment for your portfolio.
• Research index funds: Once you know which index you want to track, look at the actual index funds you will be investing in. Consider factors such as company size and capitalization, geography, business sector or industry, asset type, and market opportunities.
• Pick your index funds: When choosing an index fund, cost is often a deciding factor. Index funds are cheap to run because they are automated to follow shifts in value in an index. However, don't assume that all index mutual funds are cheap—they still carry administrative costs that are subtracted from each fund shareholder's returns as a percentage of their overall investment.
• Decide where to buy your index funds: You can purchase an index fund directly from a mutual fund company or a brokerage. Exchange-traded funds (ETFs) are also an option—these are like mini mutual funds that trade like stocks throughout the day. When choosing where to buy, consider fund selection, convenience, trading costs, impact investing, and commission-free options.
• Buy your index funds: To purchase shares of an index fund, you will need to open an investment account, such as a brokerage account, individual retirement account (IRA), or Roth IRA. You can then buy the fund in the account. You may be able to select a fixed dollar amount to spend or choose a number of shares based on the share price of the index fund and your investing budget.
• Keep an eye on your index funds: Index funds are passive management strategies, so you don't need to actively monitor them. However, it is important to periodically check that the index fund is doing its job by mirroring the performance of the underlying index. Additionally, keep an eye on fees, as you may want to reevaluate your index fund if the fees start stacking up over time.

• Invesco NASDAQ 100 ETF (QQQM)
• Fidelity NASDAQ Composite Index Fund (FNCMX)

Some additional top indexes that you can track using index funds include:

• Large U.S. stocks: S&P 500, Dow Jones Industrial Average, Nasdaq Composite
• Small U.S. stocks: Russell 2000, S&P SmallCap 600
• International stocks: MSCI EAFE, MSCI Emerging Markets
• Bonds: Bloomberg Barclays Global Aggregate Bond

Mutual funds

The easiest way to invest in the Nasdaq Composite Index is to buy an index fund, which is a mutual fund or ETF that passively tracks the index. An index fund is designed to invest in all of the components of a stock index and in the same weights as the index. The idea is that over time, index funds will deliver identical performance (less fees) as the index they track.

For example, Fidelity offers two investment vehicles that track the Nasdaq Composite. On the mutual fund side, the Fidelity Nasdaq Composite Index Fund (FNCMX) has a 0.30% net expense ratio and no minimum investment.

The Nasdaq-100 Index, which began in 1985, is a select group of the 100 largest non-financial companies from the larger Nasdaq Composite. It has long been dominated by the best tech stocks, with technology accounting for about half the fund's assets. It also holds a significant number of high-growth communication services stocks and consumer discretionary plays.

The Invesco QQQ Trust (QQQ) ETF is the best-known of the Nasdaq-100 ETFs that invest in the popular index. It has allowed investors to take advantage of rapid gains for decades, and its assets have exploded from $30 billion to $300 billion. The QQQ ETF is a simple index fund that tracks the Nasdaq-100. Top holdings include familiar tech names such as Microsoft, Apple, communications services stock Alphabet, consumer giant Amazon, and chipmaker Broadcom.

The Shelton NASDAQ-100 Index Direct (NASDX) is another mutual fund that tracks the performance of the largest non-financial companies in the Nasdaq-100 Index, which includes primarily tech companies. This fund began trading in 2000 and has a strong record over the last five and ten years.

The Invesco Nasdaq 100 ETF (QQQM) is a cheaper version of the QQQ. At 0.15% annually, it costs 5 basis points less than its sister fund.

The Invesco Nasdaq Next Gen 100 ETF (QQQJ) is similar to the QQQ, but it tracks the next 100 largest stocks after the 100 largest Nasdaq non-financials. Like its older sister fund, QQQJ is heavy in tech, but it also has a much larger position in healthcare and industrials.

Options

• Trade CFDs on the NASDAQ 100: You can trade contracts for difference (CFDs) on the NASDAQ 100, which allow you to speculate on the price of the index or the share prices of the companies listed on the exchange. Your profit or loss is determined by the difference between the price when you open and close your position.
• Trade CFDs on the US Tech 100: You can trade CFDs on the US Tech 100, which is an exclusive product based on the performance of the NASDAQ 100. Trading on the index's price offers more liquidity than trading individual stocks, and you can trade 24 hours a day, Monday to Friday.
• Trade CFDs on the NASDAQ 100: ETFs: You can gain exposure to a broad range of NASDAQ 100 shares by trading exchange-traded funds (ETFs). ETFs track the performance of a range of NASDAQ stocks, providing diversification and lower fees compared to mutual funds. However, trading ETFs on the cash (spot) price may incur overnight funding charges.
• Trade CFDs on the NASDAQ 100: Shares: If you don't want broad exposure and prefer to target specific NASDAQ-listed companies, you can trade CFD shares. With CFD share trading, you don't own company shares outright, and you have the flexibility to go long or short. CFD share trading has a minimum commission charge of $15.

Futures

To trade futures, you won't pay additional overnight funding charges or commission, as the cost is built into the spread. This is why futures have wider spreads than spot positions.

Trading index futures via CFDs means you're agreeing to trade the Nasdaq-100 at a specific price on a specific date in the future. To open a futures position, you can follow these steps:

• Go to the CFD trading platform
• Select the Nasdaq-100 under 'Indices'
• Choose 'Futures' instead of 'Cash' to trade and select your preferred date range
• Decide whether you want to buy (go long) or sell (go short)
• Choose your deal size in terms of the number of contracts
• Set your stops and limits
• Click 'place deal' to open your position

Frequently asked questions