How the S&P 500 and the Nasdaq Differ, and What Each One Gives an Investor

The S&P 500 tracks about 500 of the largest US companies across every sector of the economy, weighted by market value. The Nasdaq usually means one of two indexes: the Nasdaq Composite, which tracks more than 3,000 stocks listed on the Nasdaq exchange, or the Nasdaq-100, which tracks 100 of the largest non-financial companies on it, and both lean heavily toward technology.

So the real difference is breadth. The S&P 500 is a cross-section of corporate America, from banks and oil companies to healthcare and consumer brands, while the Nasdaq indexes are concentrated in technology and fast-growing companies, which makes them rise faster in good years for tech and fall harder in bad ones.

This guide explains what each index holds, how each is built, how they have behaved in past market cycles, how their sector mix and income differ, and the funds investors use to track them. FRC has no relationship with any fund or index provider mentioned and earns no commission from any investment.

Prefer to watch? FRC’s fact-checked investing playlist on YouTube covers the funds that track both indexes, including VOO and QQQ.

Which Nasdaq Are We Talking About?

Before comparing anything, it is worth being clear about which Nasdaq you mean. The Nasdaq Composite, launched in 1971, includes almost every stock listed on the Nasdaq Stock Market, more than 3,000 companies of every size.

The Nasdaq-100, launched in 1985, includes only 100 of the largest companies listed on Nasdaq, and it excludes financial companies such as banks. It is the index most investors actually buy, because it is the one tracked by the Invesco QQQ ETF, one of the most heavily traded ETFs in the world.

The evening news usually quotes the Composite. Investors comparing funds usually mean the Nasdaq-100. This guide covers both, and the comparison with the S&P 500 is similar for each: narrower, more technology-heavy and more volatile.

Build the Knowledge Behind the Comparison

Comparing two indexes is really comparing what they hold and how they are built. FRC’s ETF Investing for Beginners course explains how index funds and ETFs work, from how an index is constructed to how a fund is priced and taxed.

If you are preparing for a career in finance, index construction and benchmarking are exam material too. The SIE Examination Preparation course covers market indexes as part of the exam you can pass before you are hired, and the Series 65 Exam Preparation course covers how advisers choose the right benchmark for a client’s portfolio.

FRC’s programs and memberships are open to everyone, and every course can be spread across interest-free monthly payments. The same foundations apply whether you are investing your own money or advising others.

What the S&P 500 Holds

The S&P 500 tracks about 500 large US companies chosen by a committee at S&P Dow Jones Indices. To be eligible, a company must be based in the United States, meet a minimum market value, have enough shares available to trade, trade actively and have positive reported earnings.

The index spans all 11 sectors of the standard industry classification used by S&P and MSCI, including technology, healthcare, financials, consumer goods, industrials, energy, utilities and real estate. According to S&P Dow Jones Indices, it covers about 80% of the total market value of US-listed stocks.

That breadth is why professional investors treat it as the benchmark for the US stock market. When a fund manager says they beat or trailed “the market,” they usually mean the S&P 500.

What the Nasdaq Holds

The Nasdaq Composite includes almost every company listed on Nasdaq, regardless of size or country, so it holds large technology companies alongside thousands of smaller and younger businesses, including biotechnology firms and foreign companies with Nasdaq listings.

The Nasdaq-100 is narrower still. It holds 100 of the largest Nasdaq-listed companies, excluding financials, which means it is dominated by technology, communication services and consumer companies such as online retailers.

Neither index requires a company to be profitable. That is a meaningful difference from the S&P 500, whose earnings requirement keeps out many younger, loss-making companies that can sit in the Nasdaq indexes.

How Each Index Is Weighted

Both the S&P 500 and the Nasdaq Composite are weighted by market capitalization, the share price multiplied by the number of shares available to the public. The bigger the company, the more it counts.

The Nasdaq-100 uses a modified market-value weighting. It caps how large any single company can become in the index, and it rebalances when a few companies grow too dominant, which limits, but does not remove, the influence of the very largest names.

In practice, both indexes are heavily influenced by the same handful of giant technology companies. Because the Nasdaq-100 holds only 100 companies and excludes whole sectors, those giants make up a much larger share of it than they do of the S&P 500.

The Overlap Between Them

The two indexes share many of their largest companies. Apple, Microsoft, Nvidia, Amazon, Alphabet and Meta, for example, are all listed on Nasdaq and are also among the largest members of the S&P 500.

That overlap means the two indexes often move in the same direction, especially when large technology stocks are driving the market. An investor who owns both an S&P 500 fund and a Nasdaq-100 fund holds the biggest technology companies twice.

What the S&P 500 holds that the Nasdaq-100 does not is just as important. Banks, insurers, oil and gas producers, utilities and many healthcare and industrial companies sit in the S&P 500 but not in the Nasdaq-100, and they are what give the S&P 500 its broader balance.

How They Have Behaved in Past Market Cycles

History shows the trade-off clearly. During the dot-com crash, the Nasdaq Composite fell about 78% from its peak in March 2000 to its low in October 2002, while the S&P 500 fell by roughly half over a similar period.

In 2022, when rising interest rates hit technology and growth stocks hard, the Nasdaq Composite fell about a third over the calendar year, while the S&P 500 fell by about a fifth. In strong years for technology, the pattern has often reversed, with the Nasdaq indexes rising faster than the S&P 500.

Past results do not predict future ones. But they show the pattern investors should expect: the Nasdaq indexes have tended to deliver bigger swings in both directions.

Why the Nasdaq Is More Volatile

Concentration is the main reason. When a large share of an index sits in one sector, everything that affects that sector, from interest rates to regulation to changing expectations for growth, affects the whole index.

Growth companies are also especially sensitive to interest rates. Much of their value depends on profits expected far in the future, and when interest rates rise, those future profits are worth less today, which tends to hit technology and growth stocks harder than the broader market.

The S&P 500 spreads that risk across more sectors. When technology falls, sectors such as healthcare, consumer staples or energy may hold up better, cushioning the overall index.

Dividends and Income

The S&P 500 includes many mature companies that pay regular dividends, including banks, utilities, consumer goods companies and energy producers. As a result, it has typically paid a higher dividend yield than the Nasdaq-100.

Many large technology and growth companies pay small dividends or none at all, preferring to reinvest their profits or buy back shares. That keeps the Nasdaq-100’s dividend yield low, so more of its return has come from rising share prices.

For investors focused on income, that difference shapes the type of return they receive, though neither index is designed as an income investment. Always check a fund’s current distribution history on the fund’s own website rather than relying on past figures.

How Each Index Is Rebalanced

The S&P 500 is rebalanced quarterly, and the index committee can add or remove companies at any time when a company is acquired, shrinks or no longer meets the criteria. Additions are announced in advance and often draw attention, because index funds must buy the new member.

The Nasdaq-100 is reconstituted once a year, in December, when the 100 largest eligible companies are confirmed, and it is rebalanced quarterly. It can also hold a special rebalance if a few companies become too large a share of the index.

These rules keep each index faithful to its purpose. They also explain why the companies in each one change over time, often reflecting which industries are growing and which are shrinking.

How to Invest in Each Index

Investors track these indexes through ETFs and index funds rather than buying the index itself. For the S&P 500, some of the largest ETFs are the SPDR S&P 500 ETF Trust (SPY), the Vanguard S&P 500 ETF (VOO) and the iShares Core S&P 500 ETF (IVV).

For the Nasdaq-100, the most widely held funds are the Invesco QQQ (QQQ) and the Invesco NASDAQ 100 ETF (QQQM), which tracks the same index and has typically charged a lower expense ratio. For the broader Composite, the Fidelity Nasdaq Composite Index ETF (ONEQ) is a common choice.

Costs, trading volume and structure vary between funds, so always check the current expense ratio and holdings on the fund’s own website. FRC’s comparison of VOO vs VTI vs QQQ explains how three of the most popular funds differ, and the complete step-by-step guide to investing in ETFs walks through opening an account and placing your first order.

QQQ and QQQM: Same Index, Different Funds

QQQ and QQQM track the same Nasdaq-100 index, but they have different histories. QQQ launched in 1999 as a unit investment trust, a structure that could not lend out its securities or reinvest dividends between distributions, and in December 2025, after a shareholder vote, it converted to a standard open-end ETF and cut its fee.

QQQM launched in 2020 as an open-end ETF aimed at long-term investors, with a lower expense ratio than QQQ. QQQ still trades in much higher volumes, which is why many active traders prefer it, while buy-and-hold investors often compare the two on cost.

On the S&P 500 side, SPY remains a unit investment trust, while VOO and IVV are open-end ETFs. Funds tracking the same index can still differ in structure, cost and trading volume, so check each one’s current details before you buy.

Price Return vs Total Return

The index levels quoted in the news are price indexes. They track share prices only and leave out the dividends companies pay to shareholders.

Because the S&P 500 pays a higher dividend yield than the Nasdaq-100, the gap between its price return and its total return, which assumes dividends are reinvested, is usually wider. Comparing the two indexes on price alone can understate how much the S&P 500 has actually returned to investors.

When you compare a fund’s results with its index, use the total return version. That is the fairer measure of what an investor who reinvested every dividend would actually have earned over time.

Equal-Weight Alternatives

Both indexes are dominated by their largest companies. Investors who want a more even spread can use equal-weight versions, where every company counts the same regardless of size.

The Invesco S&P 500 Equal Weight ETF (RSP) tracks an equal-weight version of the S&P 500, and the Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE) does the same for the Nasdaq-100. These funds reduce the influence of the very largest companies.

They also tend to charge more and trade more often to rebalance. Their returns can differ sharply from the standard indexes, especially when a few giant companies are driving most of the market’s gains.

How Investors Use Each One

Many investors treat an S&P 500 fund as a core holding, because it offers broad exposure to large US companies at a very low cost. Some add a Nasdaq-100 fund to increase their exposure to technology and growth.

Others prefer to keep their technology exposure through the S&P 500 alone, given how much of it already sits in the same large companies. The right mix depends on an investor’s goals, time horizon and ability to stay invested through sharp falls.

Concentration is the key question to ask. If most of a portfolio already sits in the same few technology companies through several funds, it may be less diversified than it looks.

Comparing the Two Indexes

The table below summarizes the main differences.

What the Exams Test

The SIE and the Series 65 test how indexes are built and how they are used. Expect questions on market-value weighting and on which benchmark is appropriate for a given portfolio.

A portfolio of large US stocks across many sectors is usually measured against the S&P 500. A portfolio concentrated in technology and growth companies might be compared with a Nasdaq index instead, and comparing it with the wrong benchmark can make performance look better or worse than it really is.

Understanding sector concentration and volatility also feeds directly into suitability questions, where an adviser must match a client’s portfolio to their risk tolerance and time horizon.

Show What You Know

If you are building a career in finance, the ability to explain indexes, benchmarks and the funds that track them is exactly the knowledge employers expect. FRC’s Professional Membership lets you show it, not just claim it.

A QR code on your resume takes an employer to your verified Digital Profile, with your credentials, your exam progress and a short Video Resume in your own voice. You give them a fuller picture of who you are, and they spend less time checking claims.

Common Questions

Is the Nasdaq riskier than the S&P 500? The Nasdaq indexes have historically been more volatile, because they are concentrated in technology and growth companies. In the dot-com crash, the Nasdaq Composite fell about 78%, compared with roughly half for the S&P 500.

Does the S&P 500 include Nasdaq companies? Yes. Many of the largest S&P 500 companies, including Apple, Microsoft and Nvidia, are listed on Nasdaq, so the two indexes overlap heavily at the top.

What is the difference between the Nasdaq and the Nasdaq-100? The Nasdaq Composite includes more than 3,000 stocks listed on Nasdaq, while the Nasdaq-100 includes only 100 of the largest non-financial companies on the exchange.

Which index pays more in dividends? The S&P 500 has typically paid a higher dividend yield, because it includes more mature, dividend-paying companies in sectors such as financials, utilities and energy.

Should you own both an S&P 500 fund and a Nasdaq-100 fund? It depends on your goals and risk tolerance, but owning both means holding the largest technology companies twice. Check how much of your combined portfolio sits in the same few companies before deciding.

Your Next Step

The S&P 500 is a broad benchmark of about 500 large US companies across every sector. The Nasdaq indexes are concentrated in technology and growth, which has brought faster gains in strong years for tech and deeper losses in weak ones.

Before choosing between them, look at what each one holds, how much overlap you already have and how you would feel holding through a sharp fall. Then decide which index, or which mix, fits your own plan.