What is the Nasdaq Index? How to Invest Long-Term with ETFs

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Do you also want to one-click invest in global top tech companies like Apple, Microsoft, and Amazon? Investing in the Nasdaq Index is one of the best ways to achieve this goal. For ordinary investors, the simplest method is to buy ETFs that track this index. Its long-term performance is very impressive:

This article will guide you from understanding to practice, step by step, to start your investment journey.

Key Highlights

• The Nasdaq 100 Index represents the world’s top 100 non-financial tech companies.
• Investing in the Nasdaq 100 Index through ETFs diversifies risk and allows low-cost investment in tech giants.
• Long-term investors should choose lower expense ratio QQQM, while active traders can choose highly liquid QQQ.
• Open a US stock broker account, complete deposit, and use limit orders to buy ETFs to start investing.
• Before investing, understand industry concentration and weight concentration risks, and stick to long-term investment strategies.

Interpreting the Nasdaq Index: Composite vs. 100 Index

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When you hear people discuss “investing in Nasdaq,” they usually refer to two different indices. Understanding their differences is the first step to making correct investment decisions. These two core indices are the Nasdaq Composite Index and the Nasdaq 100 Index.

Nasdaq Composite Index vs. Nasdaq 100 Index

First, you need to distinguish these two concepts. The Nasdaq Composite Index (Nasdaq Composite Index) has a broader scope, including almost all companies listed on the Nasdaq stock exchange. While the Nasdaq 100 Index (Nasdaq 100 Index) is a selected collection.

The table below clearly shows their differences:

Investment Tip When you see ETFs like QQQ, they actually track the Nasdaq 100 Index. This index better represents the world’s top non-financial tech and growth companies, so it is the focus of most long-term investors.

Nasdaq 100 Index: Collection of Tech Giants

The Nasdaq 100 Index gathers the world’s 100 most influential non-financial companies. These companies are not only massive in scale but also leaders in their fields. As of now, the total market capitalization of all companies in the index is approximately $34.01 trillion, a volume sufficient to influence the global economy.

This index uses market capitalization weighting, meaning the larger the company’s market cap, the greater the impact of its stock price fluctuations on the index. You can see from the table below that the top ten companies occupy considerable weight in the index; they are all well-known tech giants you are familiar with.

Investing in the Nasdaq 100 Index is equivalent to allocating funds to these innovative leaders defining the future.

Why is it the “Barometer” for Global Tech?

The Nasdaq 100 Index is hailed as the “barometer” for global tech because it not only reflects the current state of the tech industry but also foreshadows future development trends. This is mainly reflected in two aspects: continuous innovation drive and excellent market performance.

First, companies in the index are engines of technological innovation. They continuously drive advancements in artificial intelligence, robotics, big data, and cloud computing and other cutting-edge fields. For example:

• Intuitive Surgical’s da Vinci robotic surgery system is changing the medical industry.
• Palantir Technologies uses its AI data analysis platform to provide decision support for critical sectors like defense and finance.
• Broadcom provides core chips and network equipment for AI data centers, a key cornerstone of the AI wave.

Second, its market performance is highly correlated with global tech trends. Due to focus on tech and growth industries, the Nasdaq Index has performed very well over the past decade or more. Data shows its long-term returns significantly outperform broader indices like the S&P 500.

In 16 calendar years from end-2007 to 2023, the Nasdaq 100 Index outperformed the S&P 500 in 12 years. Even in challenging economic environments, these companies can maintain growth with technological advantages. For example, in the first three quarters of 2023, the index rebounded strongly with a 35.4% return, far exceeding the S&P 500’s 13.1%. This excellent performance proves its strong ability to capture tech waves and convert them into investment returns.

Core Advantages of Investing in Nasdaq 100 ETFs

After understanding what the Nasdaq 100 Index is, you might ask: Why not directly select a few favored tech stocks instead of investing through ETFs? The answer lies in the three core advantages provided by ETFs, allowing ordinary investors to participate in the market easily and efficiently.

One-Click Diversified Investment, Reducing Individual Stock Risk

If you only hold one company’s stock, your investment success or failure is completely tied to that company. Once it encounters operational difficulties or negative news, your assets may shrink significantly. This is called “individual stock risk.”

Investing in ETFs can easily resolve this problem for you. Buying one share of a Nasdaq 100 ETF is equivalent to simultaneously diversifying your funds across 100 top companies.

Investment Wisdom Classic investment research shows that a portfolio containing 15 to 30 stocks from different industries can eliminate most non-systematic risks related to single companies. While a Nasdaq 100 ETF lets you hold 100 companies at once, providing superior diversification effects.

This means that even if one or two companies perform poorly, good performance from other companies can balance the overall portfolio, effectively reducing your investment risk.

Low Trading Costs, Friendly Investment Threshold

Building a portfolio with 100 stocks yourself is not only time-consuming and laborious but also has very high trading costs. In contrast, ETF management fees are extremely low.

Many ETFs tracking the Nasdaq 100 Index have annual total expense ratios (TER) only between 0.13% to 0.30%. This rate is far lower than most actively managed funds, allowing more investment returns to truly enter your pocket. Additionally, you only need to buy one share of an ETF to start your journey, with a very friendly threshold.

Follow Global Technological Innovation Waves

Investing in the Nasdaq Index is essentially investing in the future. These companies are engines of global technological innovation, leading the next round of industrial transformation. By holding related ETFs, your investments will automatically follow these major trends shaping the future.

In the coming years, the following areas are expected to experience explosive growth:

• Artificial Intelligence (AI): Expected to grow at over 30% annually, profoundly changing medical, finance, and other industries.
• Electric Vehicles (EV): Global market expected annual growth over 20%, with battery technology breakthroughs as key drivers.
• Cybersecurity: As digitization accelerates, demand for data security protection grows, with market scale continuing to expand.
• E-Commerce: Driven by AI personalized recommendations and mobile payments, continuing strong growth.

When you invest in Nasdaq 100 ETFs, you are investing in leaders in these fields, allowing your wealth to grow together with global cutting-edge innovative forces.

How to Buy Nasdaq Index ETFs? (Step-by-Step Guide)

Now that you understand the huge advantages of investing in Nasdaq 100 ETFs, next is the most exciting part: actual operation. Don’t worry; the entire process is simpler than you imagine. You just need to follow the following three steps to easily start your investment journey.

Step One: Choose and Open a US Stock Broker Account

To buy US-listed ETFs, you first need a US stock broker account. Choosing a safe, reliable, and strictly regulated broker is crucial; it will be the first line of defense protecting your assets.

For international investors, many well-known US brokers provide convenient account opening services. They usually have powerful trading platforms and rich research tools.

For example, Interactive Brokers is highly favored by international investors for covering over 90 global markets and powerful trading tools. While Charles Schwab is very suitable for investors wanting long-term investing and comprehensive services.

Important Reminder: During account opening, you need to prepare some basic documents, usually including identity proof (such as passport) and address proof. Additionally, as a non-US resident, you need to fill a form called W-8BEN. This form is used to declare your non-US tax resident status to the IRS, allowing you to enjoy preferential tax rates from tax treaties when receiving dividends.

Choose a well-known broker regulated by the US Securities and Exchange Commission and Financial Industry Regulatory Authority, then complete the online application according to its official website guide.

Step Two: Complete Account Deposit

After your broker account is approved, the next step is to deposit funds into the account. For investors outside the US, the most common and efficient method is bank wire transfer.

Common deposit methods include:

• Bank Wire Transfer: Directly wire funds from your local bank account to your broker’s designated receiving account.
• Account Transfer: Transfer funds or securities from other institutions’ accounts with the same name.

Wire transfer is one of the fastest methods. As long as you complete the operation before the bank’s cutoff time (e.g., 4:00 PM Eastern Time), funds usually arrive the same business day.

Deposit Tip: Wire Transfer Process

1. Obtain Information: Log into your broker account, find the wire deposit guide, and obtain recipient bank name, SWIFT code, and your exclusive receiving account number.
2. HandleRemittance: Go to your local bank (e.g., a licensed Hong Kong bank), fill out the international remittance application form.
3. Confirm Arrival: After completing remittance, funds usually appear in your broker account within 1-2 business days. Note that the sending bank and intermediary banks may charge certain fees.

Step Three: Search Code and Complete Trade

After funds arrive, congratulations; now you can execute trades! Buying a Nasdaq Index ETF is as simple as online shopping.

First, you need to search for the ETF code you want to buy in the broker’s trading software. The two most mainstream choices are:

• QQQ
• QQQM

After entering the code, you will see the ETF’s real-time quote. At this time, you need to decide which order type to use for purchase. Understanding the two most basic order types is very important: market orders and limit orders.

For long-term investors, we strongly recommend using limit orders. They ensure you do not buy at overly high prices due to momentary market fluctuations, providing a layer of price protection.

Trading Interface Overview In the broker’s trading interface, you will usually see the following key options:

• Code: Enter QQQ or QQQM.
• Order Type: Choose “limit order”.
• Price: Enter the highest buy price you are willing to pay.
• Shares: Enter the number of shares you want to buy.

After confirming no errors, click the “buy” button to submit the order. Once the market price reaches your set price, the trade will execute automatically.

Mainstream Nasdaq ETFs Comparison: QQQ vs QQQM

When you decide to invest in the Nasdaq 100 Index, you will find two ETFs with very similar codes on the market: QQQ and QQQM. Both are issued by Invesco and track the same index, but they have subtle yet important differences in design. Understanding these differences can help you make wiser investment decisions.

Invesco QQQ Trust (QQQ): King of Scale and Liquidity

QQQ is the world’s most well-known and longest-established Nasdaq 100 ETF. Its core advantage lies in its huge scale and unparalleled liquidity. As of October 2024, its assets under management have reached $300.05 billion.

More importantly, QQQ is one of the most actively traded ETFs in the US market. High trading volume means you can easily buy or sell at reasonable prices anytime, with very small bid-ask spreads.

However, its management fee rate is relatively higher at 0.20%.

Invesco Nasdaq 100 ETF (QQQM): Lower Fee Choice

QQQM can be seen as a “mini” or optimized version of QQQ, specifically designed for long-term investors. Its biggest attraction is lower fees.

Fee Advantage QQQM’s management fee rate is only 0.15%, 25% lower than QQQ. For long-term holders, this saved fee will bring more considerable additional returns under compounding.

Additionally, QQQM is more modern in structure. It can immediately reinvest received dividends, reducing “drag” from cash idle, potentially bringing slightly higher dividend yields.

How to Choose Based on Investment Goals?

So, which one should you choose? The answer depends on your investment style.

Investment Decision Guide

• If you are a long-term investor planning to buy and hold for many years, choosing QQQM is wiser. Lower fees will save you significant costs over time.
• If you are an active trader needing frequent buying and selling or planning options strategies, QQQ’s unparalleled liquidity is your first choice. It ensures your trades execute quickly at optimal prices.

Simply put, long-term holding choose QQQM to save money, short-term trading choose QQQ for convenience.

Long-Term Investment Strategies and Risk Notices

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You have learned how to buy ETFs, but successful investing is not just about the “buy” action but long-term strategies and mindset. Understanding and formulating an investment plan suitable for yourself is key to achieving wealth appreciation.

Formulating Investment Strategy: Dollar-Cost Averaging vs. Lump Sum

Should you invest all funds at once or in batches? This is one of the most common questions for investors. Both strategies have pros and cons; you can choose based on your situation.

Beginner Advice For most investors, dollar-cost averaging is the steadier choice. It helps you develop saving habits and uses market fluctuations to average your buy costs.

How to Stay Patient During Market Volatility?

The investment road is not always smooth; market declines are normal. The key to success is how you respond. To stay calm during market volatility, try the following methods:

• Focus on Long-Term Goals: Remember you invest for 5 or 10 years later, not tomorrow’s ups and downs.
• Avoid Frequent Account Checking: Checking your portfolio daily only increases anxiety; try reducing frequency, such as once quarterly.
• Limit Negative News: Continuously following negative market news easily triggers panic, leading to impulsive sell decisions.
• Review Your Plan: During market turmoil, revisit your original investment plan; this helps you firm your belief.

Many investment experts suggest holding at least 3 years or more, so your investment has the chance to experience a complete market cycle, smoothing short-term fluctuation impacts.

Potential Risks You Must Understand Before Investing

Although the Nasdaq 100 Index has excellent long-term returns, you must be clear before investing that it is not without risks.

First is industry concentration risk. The Nasdaq 100 Index is highly concentrated in the tech industry, meaning if the entire tech sector faces setbacks, the index performance will be significantly affected. Its volatility is usually higher than broader market indices like the S&P 500.

Second is weight concentration risk. The index is somewhat “top-heavy,” with a few giant companies (like Nvidia, Apple, Microsoft) occupying extremely high weights. This means if these companies driven by AI hype and other factors perform poorly, the entire index may fall accordingly, increasing portfolio risk.

Investing in Nasdaq 100 ETFs provides you with a simple and efficient path to share growth dividends from global top tech companies. You do not need to become a stock-picking expert; through long-term holding ETFs, you can participate in the US stock market and achieve steady asset appreciation.

Investing in the future starts with today’s understanding and action. Start your Nasdaq Index investment journey now!

FAQ

How Much Money Do I Need to Invest in Nasdaq ETFs?

No need for much. You only need funds to buy one share of an ETF to start. For example, if one share of QQQM costs about $200, your minimum investment threshold is $200. This makes investing very flexible and friendly.

Can I Receive Dividends from Investing in Nasdaq ETFs?

Yes. Many companies in the Nasdaq 100 Index distribute dividends. The ETF you hold will reinvest received dividends or distribute them directly to you. This income is part of your total returns.

As a Non-US Resident, Do I Need to Pay Tax on Dividend Income?

Yes. Non-US resident dividend income usually requires withholding tax. However, you can enjoy preferential tax rates from tax treaties by filling the W-8BEN form during account opening.

Are Nasdaq 100 Index Constituents Fixed?

Not fixed. The index undergoes annual adjustments, removing companies not meeting standards and adding new leading companies. This mechanism ensures the index always represents the most innovative companies.