Nasdaq-100 vs. S&P 500

Two flagship U.S. indexes — what sets them apart

When it comes to DCA-ing into U.S. stocks, the two indexes that come up most often are the Nasdaq-100 and the S&P 500. Both hold large U.S. companies, but they differ in what they hold and how much of it, which gives them different personalities and volatility. The names are familiar, but the differences are easy to mix up — here’s the essentials from a DCA investor’s perspective.

What’s inside — the difference in composition

The biggest difference is the number and breadth of companies each one holds. Both indexes are fundamentally market-cap weighted, meaning bigger companies carry more weight.

• S&P 500: made up of roughly 500 large U.S. companies. It spans nearly every industry — tech, financials, healthcare, consumer goods, industrials, energy, and more — which is why it’s often called “the index of the U.S. economy.” It includes companies regardless of which exchange they’re listed on (NYSE or Nasdaq).
• Nasdaq-100: made up of the 100 largest companies by market cap listed on the Nasdaq exchange, excluding financials. With fewer holdings, it’s structurally much more concentrated in tech and growth companies.

Sector concentration

With only 100 holdings and financials excluded, the Nasdaq-100 naturally skews heavily toward the tech sector. A handful of large tech companies make up a sizable share of the index, so when their stocks wobble, the whole index tends to wobble with them. The S&P 500, on the other hand, spreads across a much wider range of industries, so weakness in one sector can be partly offset by strength in others.

That said, it’s worth noting that in recent years the S&P 500 itself has become more concentrated in large-cap tech names, so the two indexes actually overlap quite a bit at the top. They’re less “two completely different markets” and more “the same market, viewed at different angles and concentrations.”

Volatility and growth character

With less diversification and a heavier tilt toward growth stocks, the Nasdaq-100 generally tends to climb more steeply when things are good, and fall more sharply when they’re not. The S&P 500, thanks to its industry spread, tends to be comparatively smoother. Neither is definitively “better” — more volatility means both more upside potential and more downside risk.

The important thing to remember is that past returns don’t guarantee future ones. Just because the Nasdaq-100 led during a strong stretch for tech stocks over roughly the last decade doesn’t mean that will always be the case. You can check the actual DCA results for both indexes yourself in the calculator and the ticker comparison table on the homepage.

The flagship ETFs — QQQ and SPY

You can’t buy an index directly, so you invest through a fund built to track it — an ETF (we cover the basics in What Is an ETF?).

• QQQ (Invesco QQQ Trust): the flagship ETF tracking the Nasdaq-100. QQQ DCA backtest
• SPY (SPDR S&P 500 ETF Trust): tracking the S&P 500, one of the oldest and most heavily traded ETFs in the world. SPY DCA backtest

Both carry relatively low expense ratios and pay dividends. 10-eok’s backtests use adjusted closing prices that account for reinvested dividends and fees, so those costs and payouts are already baked into the results.

Which one fits your temperament

This isn’t here to hand you an answer — just to lay out the questions worth asking yourself.

• If big swings are hard for you to stomach, the more broadly diversified S&P 500 may feel more comfortable — especially if you’re the type to check your account daily during a downturn.
• If you want more concentrated exposure to tech and growth and can handle bigger swings, the Nasdaq-100 fits that temperament — just accept that the drawdowns can run deeper too.
• When you’re buying the same amount every month, volatility isn’t necessarily a bad thing — a down month means you pick up more shares for the same money. Just remember that the more volatile the index, the more your results can swing depending on exactly when you start and stop.

Leveraged versions exist too

The Nasdaq-100 has leveraged ETFs like QLD, which targets 2x the daily return, and TQQQ, which targets 3x. The key detail is that “daily” multiplier — once several days stack up, the result isn’t simply 2x or 3x the index’s cumulative return, and volatility can create losses of its own (so-called volatility decay). During a decline, that same multiplier amplifies the losses too. Be sure to read The Risks of Leveraged ETFs for the full picture.

This content is for general information only, not investment advice or a solicitation.