General information
The NASDAQ 100 is a stock index for mainly American technology companies. Included are the most valuable 100 non-banks listed on the American stock exchange Nasdaq. The size of these companies ranges from Apple, with a valuation of over three trillion US dollars, to $12 billion for Peloton (indoor bikes).
This index is published by the US stock exchange Nasdaq (abbreviation for National Association of Securities Dealers Automated Quotations).
The NASDAQ 100 has international recognition and relevance. It is often used to evaluate the entire technology and software sector.
Calculation of the index
The value of this index is calculated on trading days during the opening hours of the Nasdaq stock exchange. These are in Central European time from 15:30 to 22:00. During this period, the price of the index is updated once per second.
The calculation is based on the so-called value index formula. This calculation takes into account the development of each individual share.
These individual changes are additionally weighted. This means that the largest company has more influence on the index than the smallest company. Criteria for this weighting are market capitalization and the number of freely tradable shares.
The most important criterion for inclusion in the index is market capitalization. In addition, a candidate must have a high trading volume and have been listed on Nasdaq for at least two years. Decisions on the inclusion of new companies and the removal of companies included in the index are usually made once a year.
Overview of the index history
The NASDAQ 100 was launched on January 31, 1985. A starting value of 250 points was attributed to this day. Nine years later, the index was divided in the ratio 2:1. This means that all prices ever calculated are halved. Thus, the new base value is 125 points.
The technology bubble (also called the dotcom bubble) of 2000 - 2003 hit the Nasdaq particularly hard. Before that, however, the index rose about 3,600% in just 15 years during the inflation of the bubble. This corresponds to an annual return of about 27%!
The fall in the share price after the burst was correspondingly severe. From over 4,700 points in March 2000, it fell by around 80% to 800 points in October 2002. The Nasdaq also lost over 50% during the financial crisis. At the low point in March 2009, the index had a value of only 1,040 points.
Over the past 12 years, the Nasdaq has been on a strong upward trend. In January 2022, the index stands at almost 16,000 points. The reason for this rapid development is, among other things, the growth of tech giants such as Apple, Microsoft and Co.
Historical share price development
If an investor had invested €1,000 in the index at the start of 1985, this investment would be worth around €126,400 today. This corresponds to an annual return of almost 14%.
Over the past five years, the Nasdaq has gained a total of 213%. This is significantly more than the 82% of the global stock index MSCI World.
Significance for private investors
Investors have been able to make a lot of money with the Nasdaq 100 in the past. In general, it is noticeable that the downward and upward swings are larger than in broader indices. Thus, an investment in the Nasdaq is more suitable for risk-affine investors.
There are many different ETFs that try to track this index. Especially in conservative portfolios such an investment can be a good addition.
However, investors should always keep an eye on the proportion of highly valued technology stocks in the portfolio. This is often relatively high, especially among young investors.
