As I write this on Tuesday, the Nasdaq Stock Market is having a good day, with the Nasdaq Composite index up 315 points, or 2.9%. Despite that, though, the Nasdaq is actually down a lot (about 31%) from its 52-week high hit nearly a year ago. None of this is really unusual. There are always occasional days when the stock market surges and occasional days (and years) in which it sinks.
So you might reasonably ask if it's safe to invest in the stock market, and specifically in the Nasdaq now? The short answer is: Generally yes, with some caveats.
Image source: Getty Images.
What's the Nasdaq?
The Nasdaq is an exchange where 3,900 companies list their shares, with a total market value near $13 trillion. The other main American stock market is the venerable New York Stock Exchange, tracing its roots back to a buttonwood tree in Manhattan in 1792. It recently had more than 2,400 listed companies.
Founded in 1971, the Nasdaq was the world's first electronic stock market, and today a great portion of its value comes from technology-heavy companies. Here, for example, are the 10 biggest companies that trade on the Nasdaq, with their recent market value:
|
Company |
Recent Market Value* |
|---|---|
|
Apple |
$2.3 trillion |
|
Microsoft |
$1.9 trillion |
|
Alphabet |
$1.3 trillion |
|
Amazon |
$1.2 trillion |
|
Tesla |
$780.4 billion |
|
Meta Platforms |
$376.9 billion |
|
Nvidia |
$327.6 billion |
|
PepsiCo |
$230.3 billion |
|
Costco Wholesale |
$212.2 billion |
|
Broadcom |
$193.9 billion |
Data source: Morningstar.com. *As of Oct. 3, 2022.
Why invest in the Nasdaq now?
So why should you invest in the Nasdaq, and why now? If you have money to invest, and you want to buy stocks (since they're just about the best way for average folks to build wealth over long periods), the Nasdaq offers access to lots of great companies.
In general, there's rarely a better time to invest than when you're ready, with cash available. You might think you should wait if the stock market has surged recently, but it could keep surging for a few more years.
Below, you'll see the annual returns of the Nasdaq Composite Index, which incorporates the returns of just about all the 3,000-plus companies in the exchange.
|
Year |
Return of Nasdaq Composite Index (Loss) |
|---|---|
|
2021 |
21.39% |
|
2020 |
43.64% |
|
2019 |
35.23% |
|
2018 |
(3.88%) |
|
2017 |
28.24% |
|
2016 |
7.5% |
|
2015 |
5.73% |
|
2014 |
13.4% |
|
2013 |
38.32% |
|
2012 |
15.91% |
Data source: Macrotrends.net.
Now, imagine that you're in one of these years, trying to predict what will happen next year. After five years of gains from 2012 through 2016, you might reasonably expect a pullback. But no, the Nasdaq surged more than 28% the following year. Similarly, after huge gains in 2019 and 2020, the Nasdaq surged again in 2021, instead of catching its breath, as it's doing this year.
No one knows what the stock market will do in the short term. So it's usually best to just jump in instead of trying in vain to time the market.
And with the Nasdaq being down so sharply lately, you're in a particularly good position by investing now, because stocks are more undervalued (or less overvalued) than they've been in a while. Thus, you will have a greater margin of safety now.
How to invest in the Nasdaq
So, how might you invest in the Nasdaq? One good option is the Invesco QQQ Trust, which is an exchange-traded fund (ETF) encompassing the 100 biggest companies in the Nasdaq, starting with the 10 listed earlier. It's been a strong performer, averaging annual returns of 12.7% over the past 15 years and 15.9% over the past 10.
Another option is the Invesco Nasdaq Next Gen 100 ETF, which features the next 100 biggest companies in the Nasdaq -- ones that, arguably, have great growth potential because they're not yet giants. Companies in this index include The Trade Desk, Tractor Supply, Ulta Beauty, First Solar, and Check Point Software Technologies. It's a relatively new ETF and is down sharply over the past year, just like the overall Nasdaq. But just as the stock market has always recovered from each crash and correction, so can this ETF.
Why you might not want to invest now
All these good points aside, there are some reasons you might not want to invest in the Nasdaq right now. For example:
- If you don't know what you're doing and you're nervous, stop and take some time to learn more about investing.
- If you want to invest money that you'll need within about five years (or 10, to be more conservative), keep it out of stocks, because anything can happen in the short run.
- If you're more interested in another particular market or index fund, you might just invest in that. The Vanguard Total World Stock ETF (VT), for example, can have you easily invested in most of the world's stock markets.
So if you want to invest in the Nasdaq now, rest assured that it's a fine time to do so for most people.
