An Overview

NASDAQ Index Vs Dow Jones

We use US brands in our everyday lives, like Nike sneakers, Apple iPhones and Meta applications. We can become stakeholders of these businesses if we are users of their products. Investing in the US stock market allows you to diversify your assets across many geographies. However, the stock market is full of risks. So, before investing in the US stock market, be sure you grasp the market’s fundamentals.

The full form of NASDAQ is the National Association of Securities Dealers Automated Quotations. It was established in 1971. Furthermore, the trading volume on this exchange is the most significant in the world, contributing to the relatively higher volatility. It is one of the world’s most popular and biggest stock exchanges by market capitalization, behind only the NYSE. The Nasdaq index covers the world’s biggest technological companies, including Google, Apple, Amazon, and Meta.

Charles Dow, Edward T Jones and Charles Berkstresser created Dow Jones in 1896. The index includes 30 significant corporations from the United States. These firms are well-known and well-liked in every society. This index is listed on both the NYSE and the NASDAQ. In addition, investors from all around the globe watch it to gain a sense of the global stock market.

Dow Jones Vs NASDAQ Index – Historical Performance Comparison

The Dow Jones/NASDAQ index ratio yields an interactive chart. A high ratio indicates that the tech has gone wild and that a strong bullish mindset is dominant. It is also an indication that the economy is doing well. 

Index Funds and ETFs are two strategies to trade the NASDAQ index vs. Dow Jones. Index funds are designed to follow a specific index, such as the NASDAQ Index. Investing in an index fund is a passive investment method in which returns are maximized by lowering the frequency with which equities are bought and sold. In addition, it is an effective way to save operational costs. Because the fund mimics an index, the need for research analysts and other associated fees is eliminated.

Top 5 Differences in NASDAQ Index Vs. Dow Jones

There are five significant distinctions between the NASDAQ index Vs. Dow Jones:

• Performance: The performance of the NASDAQ index is mainly determined by the performance of technology stocks. But, in Dow Jones, it is about the 30 firms as a whole, not any particular company. The number of firms in these two indices is one of the most apparent differences. The NASDAQ index comprises over 2,500 firms, and the Dow, which has just 30 companies, is at opposite extremes of the spectrum. The figure below shows the ratio of both indexes from 1977 to the present.

https://www.macrotrends.net/2528/dow-jones-vs-NASDAQ-chart

• Calculation Methodology: A market measure’s value is the outcome of mathematical computation. And the disparities across indices may be significant. For example, stocks having the highest per-share price are given more weight in the Dow Jones industrial average. That implies that IBM, worth about $200 per share, has a significantly higher weight than Bank of America, which is worth less than $10 per share. The NASDAQ index is weighted by market capitalization. That is, the NASDAQ index is dominated by the corporations with the highest overall market value. The two indexes are computed in different ways. Dow Jones is a price-weighted index, which means that businesses with higher stock prices are given more weight. The impact of mergers and stock splits is accounted for by adding or subtracting from the index. In the case of the NASDAQ index, it is based on the average of the index businesses’ market capitalization (Outstanding shares*Price).
• Selection Methodology: Another important factor influencing index value is the kinds of firms included. The DJIA measures the valuation of 30 large companies, the most well-known sector-based giants. And the NASDAQ composite only covers equities trading on the NASDAQ exchange. These factors alone might result in entirely different indices. The Dow Jones Industrial Average is the blue-chip index and a gauge of the largest corporations, although it is greatly influenced by what the stocks with the highest share prices are doing. And the NASDAQ index is significantly weighted in favor of large technology businesses since they are the corporations that dominate that exchange.
• Volatility: Dow Jones’s volatility is low since it comprises the top 30 firms. So these blue-chip corporations provide minimal volatility, but the NASDAQ index is more volatile than Dow Jones due to the high-risk and growth-oriented companies (the tech giants).
• Sector Diversification: Another significant distinction between the two indices is the sector diversification within them. Because it is mainly made up of tech giants, the NASDAQ index has the least level of industry diversity. The technology sector accounts for 52% of the entire index, while consumer goods account for 16%. The Dow Jones, however, is purposefully well-diversified across several industries.

How to Invest? 

Investors may track the Dow Jones and NASDAQ index. Still, they cannot trade them directly because they are indices—representations of the performance of a collection of companies in the form of a mathematical average. Investors may, however, acquire index funds that mirror these indices, which might be exchange-traded funds (ETFs) or mutual funds. That is, they buy and hold the securities that compose the indices in their portfolios. In this sense, their performance closely resembles that of their benchmark index—minus, of course, commissions and cost ratios.

During a crisis or recession, investors avoid global investment in firms or industries deemed cyclical, speculative, or high-risk, such as untested startups, hospitality services, and makers and merchants of upmarket consumer goods. Instead, search for dependable companies with solid markets for their products and services, little debt, and substantial cash flow. Examples include defense contractors, utilities, funeral homes, supermarkets and discount merchants, and manufacturers of cosmetics, firearms, alcoholic drinks, and dairy products.

If you’re wondering how to invest in global equities from India, Stockal may be your go-to platform for researching international investing alternatives, whether or not there’s a recession. Stockal’s platform facilitates global investing from India by offering a diverse selection of investment alternatives for all investors, including stocks and ETFs from over 5500 worldwide firms, curated significant funds, and ready-made stacks. Moreover, Stockal’s Cash Management is a one-stop solution for managing all aspects of your foreign finances. In addition, Stockal provides built-in and strong global investing market research that can benefit you.

Wrapping Up

The terms NASDAQ index and Dow Jones pertain to market indices. However, it should be highlighted that an investor may only buy and sell stocks on the NASDAQ index since it is also an exchange where securities can be sold and purchased digitally. Furthermore, these indices cannot be traded since they only reflect a certain pool of securities based on specific criteria, such as market capitalization based and price-weighted. Instead, trading may be done via exchange-traded funds or index funds.