Investing can seem really daunting. There are sooooo many different things to consider. And sadly, financial professionals have a habit of using ten-dollar words and speaking over the heads of their audiences in order to make themselves sound smarter than they probably are. But not here. Let me explain (in simple terms) what the NASDAQ is and how you can use it if you choose to.
What is the NASDAQ?
The word NASDAQ is an acronym for “National Association of Securities Dealers Automated Quotations”. Just call it the NASDAQ. The full name is way too long.
The NASDAQ is two things.
- A marketplace for buying and selling stocks just like the New York Stock Exchange, the Shanghai Stock Exchange, or the Hong Kong Exchanges. Think about it like this: If you want to buy groceries, you can go to a number of different grocery stores. They may not have all of the same food but you can choose which one you go to. The NASDAQ is basically a store for buying stocks.
- A composite index of about 3,700 stocks. This is similar to the S&P 500 composite index, the DJIA Index, or the Russell 2000 index. It’s simply a grouping of a bunch of different stocks.
As far as the NASDAQ as an stock exchange marketplace, it is the second largest in the world only behind the New York Stock Exchange (NYSE). It is also the largest global market to rely solely on electronic trading.
This exchange is made up of about 3,700 companies that are primarily tech related and are based all over the world. They do not have to be based in the United States.
But it is important to note that even though there are a whole bunch of companies on this exchange, there are a few gorillas in the room that make up more than 40% of the overall exchange. They are:
- Apple
- Microsoft
- Alphabet (the parent company of Google)
- Meta Platforms (the parent company of Facebook)
- Amazon
- Tesla
However, when most people think of the NASDAQ, they think of the composite. Someone might say, “I bought $1,000 in the NASDAQ.” This means that they bought into an index fund that tracks the NASDAQ exchange.
This is the same as if someone bought money in the S&P 500 index, DJIA index, Russell 2000 index, etc.
Final Thoughts
See, that wasn’t two bad. The NASDAQ simply is a (1) a stock exchange where tech companies are traded and also (2) a composite (or index) of those companies listed on the exchange.
Investing in this index is a really good way to get exposure to both international stocks as well as tech stocks which can have really big payoffs (but also maybe really big losses). Because, remember, you always have to balance risk and reward.
You can do this!
I am here for you!
Until next time!
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