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Passive investing has often been a proven winner in the long term, but investors still need to choose which index to invest in. The S&P 500 and the Nasdaq 100 are two of the most popular options. Both offer a way to buy shares in a portfolio of the largest and most successful U.S. companies.
However, they take different approaches: the Nasdaq 100 concentrates on 100 top tech-heavy growth stocks, while the S&P 500 spreads risk across 500 diverse companies. Your choice ultimately depends on how much risk you wish to take on.
Key Takeaways
- The Nasdaq 100 consists of the 100 largest nonfinancial companies listed on the Nasdaq stock exchange.
- The S&P 500 represents the 500 biggest U.S. stocks by market capitalization.
- Over the long term, the tech-heavy Nasdaq 100 has generated superior returns.
- However, the Nasdaq 100 is also more volatile and suffers bigger losses than the more diversified S&P 500.
Nasdaq 100
The Nasdaq 100 is a collection of the 100 largest nonfinancial companies listed on the Nasdaq stock exchange. Founded in 1985, it is widely considered a proxy for the technology sector and growth stocks and weights stocks based on their market capitalization—meaning the bigger the company’s valuation, the higher the percentage of the index it represents.
As of Aug. 22, 2025, the five biggest holdings were NVIDIA (NVDA), Microsoft Corporation (MSFT), Apple Inc. (AAPL), Alphabet Inc. (GOOGL), and Amazon.com Inc. (AMZN).
S&P 500
The S&P 500 Index represents the 500 biggest U.S. stocks by market capitalization and is regarded as one of the best gauges of U.S. large-cap equities and the overall health of the U.S. stock market.
The S&P 500 index is also capitalization-weighted. However, it is much less concentrated than the Nasdaq 100. The S&P 500, of course, lists 400 more stocks, picks from more than one stock exchange, and offers broader exposure to different sectors. Its biggest holdings, as of Aug. 22, 2025, are NVIDIA (NVDA), Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), and Meta (META)—all tech companies—though about two-thirds of the index consists of other non-tech sectors such as financials, healthcare, and consumer discretionary.
Tip
Indexes are benchmarks. You can’t directly buy them. However, there are ways to replicate their performance. Generally, the easiest and cheapest way to do this is through an index exchange-traded fund (ETF).
Nasdaq 100 vs. S&P 500: 20-Year Performance
When deciding which index to invest in, a key consideration is historic performance. In the chart below, we show how much $10,000 invested at the beginning of January 2005 in ETFs tracking the Nasdaq 100 (Invesco QQQ, QQQ) and S&P 500 (iShares Core S&P 500 ETF, IVV) would have been worth in January 2025, both with and without adjusting for inflation.
Which Is the Better Long-Term Investment?
Based on the above, the Nasdaq 100 looks to be the clear winner. However, that doesn’t necessarily mean it is the best option for everyone. Chasing higher returns increases the risk of bigger losses. In addition, if you put your money in or took it out at different points, your returns might look very different.
A key reason for the Nasdaq 100’s outperformance over the past two decades is its heavy concentration in high-growth technology. These growth stocks have been very popular thanks to cheap borrowing costs, landmark changes, and investor enthusiasm for their high earnings potential.
When expectations are high, a minor setback can trigger a sharp sell-off. Tech stocks, particularly in recent times, are often priced to achieve their best-case scenarios. And when the Nasdaq 100 crashes, it crashes hard, as the dotcom bubble proved.
The Bottom Line
The Nasdaq 100 and S&P 500 have both made great investments over the past 20 years. Over the long term, the former has been the best performer. However, because of its heavy concentration and tech focus, the Nasdaq 100 is also more volatile. Ultimately, what’s best for you depends on your risk profile and financial goals.
