When a news anchor says “the market was up today”, they usually mean the S&P 500. When a tech stock rally makes headlines, the number on screen is often the Nasdaq-100. The two indices overlap heavily, yet they’re built differently and behave differently, and that matters if you’re buying a fund that tracks one of them.
What’s inside each index
The S&P 500 holds about 500 large US companies chosen by a committee at S&P Dow Jones Indices. To get in, a company needs to meet rules on size, liquidity and profitability. It covers every sector of the economy: technology, healthcare, banks, energy, utilities, consumer brands.
The Nasdaq-100 holds the 100 largest non-financial companies listed on the Nasdaq stock exchange. Two words do a lot of work there. “Non-financial” means no banks or insurers. “Listed on the Nasdaq” means companies listed on the New York Stock Exchange are left out, no matter how large.
Side by side
| S&P 500 | Nasdaq-100 | |
|---|---|---|
| Number of companies | About 500 | About 100 |
| Who’s included | Large US companies, selected by committee | Largest non-financial Nasdaq listings |
| Financial companies | Yes | No |
| Sector mix | Broad | Heavy in technology and communication services |
| Weighting | Float-adjusted market cap | Modified market cap, with caps on the largest names |
| Typical behaviour | Steadier | Larger swings in both directions |
Why the Nasdaq-100 moves more
Concentration. A handful of giant technology companies make up a large share of the Nasdaq-100, so their results and their valuations drive the index. When growth stocks are in favour, it tends to outrun the S&P 500; when interest rates rise or tech falls out of favour, it usually falls harder. The dot-com bust in the early 2000s and the 2022 sell-off both hit the Nasdaq-100 much harder than the broader market.
The same big tech names also sit at the top of the S&P 500, by the way. Both indices weight companies by size, so the biggest firms carry the most influence — we explain how that works, and how it differs from the price-weighted Dow, in how stock indices are weighted.
Which one to own?
There’s no universal answer, but a few points help:
- For a single “core” holding, the S&P 500 is the more diversified choice.
- Owning both doesn’t double your diversification. Much of the Nasdaq-100 is already inside the S&P 500, so you’d be tilting further towards tech.
- Dividend yields differ. Many Nasdaq-100 companies reinvest profits rather than paying them out, so yields are usually lower — see how dividends get paid.
- Compare fund costs. Index funds and ETFs tracking these benchmarks charge very different expense ratios.
If you add to an index fund every month, the advice from our dollar-cost averaging guide carries over almost word for word. And for official background on how index funds work, the SEC’s investor site Investor.gov is a clear, non-promotional starting point.
More on market benchmarks lives in our indices section.
