S&P 500 vs Nasdaq-100: what is the difference?

Key takeaways

• The S&P 500 covers about 500 large US companies across all sectors.
• The Nasdaq-100 holds the 100 largest non-financial Nasdaq companies.
• The Nasdaq-100 is more concentrated and tech-heavy.
• It has historically been more volatile in both directions.
• The two overlap heavily at the top.

The S&P 500 and the Nasdaq-100 are the two most popular US stock indices for index funds. They overlap heavily at the top, yet are built in quite different ways.

How each index is built

S&P 500

• About 500 large US companies chosen by a committee at S&P Dow Jones Indices.
• Covers all sectors, including financials.
• Requires profitability (positive earnings) for inclusion, among other criteria.
• Weighted by float-adjusted market cap. See free float market cap.

Nasdaq-100

• The 100 largest non-financial companies listed on the Nasdaq exchange.
• Excludes financial companies such as banks.
• Includes some non-US companies listed on Nasdaq, such as ASML.
• Uses a modified market cap weighting with caps to limit the largest weights.
• Includes companies regardless of profitability.

What that means in practice

Sector mix. The Nasdaq-100 is dominated by technology and communication services, while the S&P 500 is more diversified across healthcare, financials, industrials, energy and consumer staples. See sectors.

Overlap. Most of the largest S&P 500 companies — such as Apple, Microsoft, Nvidia, Amazon and Alphabet — are also in the Nasdaq-100 and make up a big share of both. Companies listed on the NYSE, such as many banks and energy firms, are only in the S&P 500.

Concentration. With 100 companies and a tech tilt, the Nasdaq-100 is more concentrated. Its top 10 holdings typically make up roughly half of the index.

Volatility. Because of its concentration and growth tilt, the Nasdaq-100 has historically moved more in both directions. It fell more sharply in the dot-com crash of 2000–2002 and in 2022, and rose faster in strong tech rallies. See volatility and drawdown.

Past performance

Over the 2010s and early 2020s, the Nasdaq-100 outperformed the S&P 500, driven by large tech companies. Over other periods, such as the decade after 2000, it did much worse. Past performance does not tell you which will do better next. Check current return figures from the index providers rather than relying on headlines.

Which one fits which investor?

• S&P 500: broader diversification across sectors, often used as a core holding and a common benchmark.
• Nasdaq-100: a deliberate tilt toward large tech and growth companies, with higher concentration risk.

Many investors who hold both end up with significant overlap, so check the combined exposure. For even broader diversification, some choose a global index fund.

Costs and fund choice

Both indices are tracked by many ETFs. Compare the expense ratio, domicile, accumulating vs distributing share class and trading liquidity. See accumulating vs distributing ETFs.

Currency risk for European investors

Both indices are priced in US dollars. If you invest from the euro area, your return in euros also depends on the EUR/USD exchange rate. A rising dollar boosts euro returns; a falling dollar reduces them. Some ETFs offer currency-hedged share classes that reduce this effect at an extra cost. This applies equally to both indices, so it does not change the comparison, but it does affect what you actually earn.

Common mistakes to avoid

• Holding both and assuming that doubles diversification.
• Choosing by recent returns alone.
• Ignoring sector concentration risk in the Nasdaq-100.
• Forgetting currency risk when investing in US indices from Europe.

Bottom line

The S&P 500 is a broad index of large US companies across all sectors; the Nasdaq-100 is a concentrated, tech-heavy index of the largest non-financial Nasdaq companies. Neither is “better”; they carry different risks. Compare them with other assets on Bitcoin vs S&P 500 and gold vs S&P 500.

Frequently asked questions

Is the Nasdaq-100 riskier than the S&P 500?

Historically it has been more volatile because it is more concentrated and tech-heavy.

Does the Nasdaq-100 include banks?

No. It excludes financial companies.

How much do the S&P 500 and Nasdaq-100 overlap?

A lot at the top. Most of the largest Nasdaq-100 companies are also the largest S&P 500 holdings.

Should I own both?

Owning both increases exposure to the same large tech companies. Check combined weights before adding both.

Is the Dow Jones the same as the S&P 500?

No. The Dow Jones Industrial Average has 30 companies and is weighted by share price, not market cap.

Can I buy the index directly?

No. You invest through an index fund or ETF that tracks it.

Sources

• S&P Dow Jones Indices: S&P 500 methodology
• Nasdaq: Nasdaq-100 index methodology
• SEC Investor.gov: Glossary and investor education

This article is general education, not financial, tax or legal advice. Hodlia.fi does not recommend buying or selling any asset. Check current rules and do your own research before making decisions.