The Nasdaq-100 is one of the most popular indexes and lets you invest your savings in 100 major tech companies in one go. In this article, we explain the benefits of the Nasdaq-100 for you as an investor, and show you how to invest in it. We also explore the downsides of putting your money in a single industry and look at some alternatives with greater diversification.
What is the Nasdaq-100?
Nasdaq stands for the National Association of Securities Dealers Automated Quotations. That’s such a long name! It’s more known as the Nasdaq-100 as the index consists of 100 companies that are classified as technology companies. Industries such as hardware, software, telecommunications and biotechnology make up the index, and all major tech companies like Apple, Google, Microsoft and Tesla are in it.
The historical returns of the Nasdaq-100
Since its inception in 1971, its popularity has grown as tech companies have continued to generate significant returns for their investors. As you can tell in the graph below from Backtest, a €10,000 investment in the Nasdaq-100 in 2007 would have resulted in almost €90,000 in 2022. That's a staggering 15.6% average annual return.
We can see that the tech industry has been outperforming other sectors when comparing the historical performance of the Nasdaq-100 with the broader S&P 500. In contrast with the Nasdaq-100, the S&P 500 consists of approximately the 500 largest companies in the US from all industries. The comparison is shown in the graph below.
Buying a Nasdaq-100 ETF through a broker
You can't directly invest in the Nasdaq-100 because it's an index, not a fund. But you can invest in one of the many ETFs that follow its composition and performance.
Finding the right ETF
There are a few criteria to keep in mind for Belgian investors when choosing an ETF:
- Accumulating. If you choose a distributive version of the ETF, you are liable to pay a 30% tax on all dividends. As there are also no capital gains taxes on stocks, it’s preferable to choose an accumulating fund.
- Traded in €. If you buy a fund that is not traded in Euro, the broker will likely convert it for you. However, the broker sees this as another source of revenue so it often comes at an additional cost. For this reason, it's best to invest in funds that are trading in Euro.
- Domiciled in Ireland or Luxembourg. It’s important for Belgian investors to choose a fund that is domiciled in Ireland in Luxembourg to reduce the tax burden.
Read our article on how to invest in ETFs in Belgium to learn more about choosing the right ETF.
You can use justETF to find the ETFs in Europe that track the Nasdaq-100. Head on over to justETF.com and search for "nasdaq-100". You’ll see that there are a few ETFs tracking the index:
Note that no ETF will show if you indicate on justETF that you're from Belgium. Simply input another EU country, such as Germany, and you’ll have access to all the data shown above.
The ETF "iShares Nasdaq 100 UCITS ETF (Acc)" (ISIN IE00B53SZB19) offered by iShares fulfils the criteria we’re after:
Choosing a broker
You can't go directly to iShares to buy the ETF. Instead, ETFs are traded on stock exchanges. And you can access stock exchanges through a middleman called a "broker". There are many brokers to choose from in Belgium and each has their pros and cons. We recommend you explore our tool to find the cheapest broker in Belgium to buy the Nasdaq-100 ETF:
DEGIRO is the cheapest broker. Although price isn't the only factor to consider, we will use DEGIRO in the rest of the article to buy our ETF.
Buying the Nasdaq-100 ETF from iShares through DEGIRO
From the DEGIRO dashboard, search for the ETF using its ISIN code "IE00B53SZB19". You'll see a few options, which may be confusing. Each option is a different stock exchange on which you can buy the ETF. To avoid paying a broker fee to DEGIRO, it’s important you buy it on the Euronext Amsterdam stock exchange, indicated by "EAM":
You’ll notice that the price for one share is €635.50. This means that you need at least that balance on your DEGIRO account to buy it, as you're unable to buy fractions of ETFs. This makes it harder to do monthly investments unless you have a high savings rate.
There are two costs associated with buying an ETF through a broker:
- Broker fee. DEGIRO waives the broker fee for the Nasdaq-100 ETF from iShares provided you buy it on the Euronext Amsterdam stock exchange and you follow DEGIRO's fair use policy for the ETFs in their "kernselectie". Note that they regularly change their pricing so make sure you double-check before you make that purchase.
- The Belgian transaction tax. Every single time you either buy or sell an ETF on the stock market, you need to pay the Belgian state a fee. The rate of the transaction tax is dependent on characteristics of the ETF. For our Nasdaq-100 ETF from iShares, the transaction tax is 0.12% of the price of the share. We explained in detail how to calculate the transaction tax of any ETF.
Once you’re ready, click “Buy” and you will have purchased your ETF. Congrats!
The downsides of the Nasdaq-100
As we’ve shown, the Nasdaq-100 is a solid index to invest in and has provided significant returns to investors over the years. However, it does have some downsides:
- You invest only in the US
- You leave returns from other countries on the table
- You invest in "only" 100 companies
- The Nasdaq-100 fluctuates a lot
- The tech industry may not outperform other industries in the future
You invest only in the US
The US stock market has performed exceptionally well during the last 30 years and has outperformed the rest of the world. This is visible in the graph below, which compares the performance of the American stock market through the S&P 500 to the performance of the rest of the world, measured by the MSCI World index.
But the past does not guarantee future returns. And it's a real possibility that this scenario won't repeat itself over the next 30 years. To protect yourself against a bad outcome for your savings, it's better to diversify beyond the US and invest in companies from all over the world.
You leave returns from other countries on the table
Countries such as China or Brazil have the potential to grow significantly over the next decades. If you invest only in the US through the Nasdaq-100, you leave aside all these sources of return coming from other countries.
You invest in "only" 100 companies
The companies in the Nasdaq-100 represent about 15% of the global stock market. This isn’t sufficient diversification. Solid investment returns can be achieved across different sectors and company sizes. Just like it pays off to diversify across multiple countries, it's a good idea to spread across different industries and not put all your eggs in one “tech” basket.
The Nasdaq-100 fluctuates a lot
Tech stocks are exciting compared to other more boring industries. But that also makes them a lot more volatile. And the sharp ups and downs may not be suited to you and your tolerance for risk. During the first three quarters of 2022, the value of the Nasdaq-100 dropped by over 30%! You need to have a strong conviction to not panic and stay the course.
Diversification across many sectors and industries can reduce volatility. For instance, the MSCI World index dropped by 12% during the same period. This index consists of over 1,500 companies from the US, Europe, Australia and other countries considered "developed". Adding another type of investment into your portfolio, such as bonds, can also reduce volatility.
Managing the risk of your investments is important to reduce losses and help you sleep at night.
Alternatives to the Nasdaq-100
Diversify across industries: the S&P 500
The S&P 500 is another index just like the Nasdaq-100 that is composed of the 500 largest American companies. Investing in the S&P 500 means you get exposure to a large section of the US economy as the index covers 80% of the total American market capitalisation. It's more diversified than the Nasdaq-100 but it's still concentrated in the US. Betting on a single country, no matter how dominant its market is at the moment, increases the likelihood of a bad outcome for your savings.
Global diversification: Curvo Growth
An option for Belgian passive investors is to invest through Curvo. In particular, the Curvo Growth portfolio is a good alternative to the Nasdaq-100. It's composed of two broadly diversified funds, both offered by Vanguard:
- FTSE Developed All Cap Choice index (ISIN: IE00B5456744)
- FTSE Emerging All Cap Choice index (ISIN: IE00BKV0W243)
The Curvo Growth portfolio addresses the shortcomings of investing only in the Nasdaq-100 index. The portfolio invests in over 7,500 companies from 40 different countries (both "developed" and emerging countries) and across all sectors. So it offers a lot more diversification than the 100 tech companies in the Nasdaq index.
Investing the right way through Curvo
Diversified portfolio built for you and your goals
Once you download the Curvo app, we ask you a few questions to learn about you. Based on your answers, you’ll receive a globally diversified portfolio of index funds that matches your goals. Each portfolio invests in more than 7,000 companies and has the right mix of stocks and bonds to suit the level of risk that you want to take.
Easy monthly investments
You can set up automatic monthly contributions from €50 to put your investments on auto-pilot. Set up your monthly plan and get peace of mind that your money is working for you.
No transaction tax
Fortunately, the Belgian transaction tax is not applicable to the funds in Curvo’s portfolios. This means you’re saving between 0.12% and 1.32% per transaction depending on the ETF you choose. This can be a significant saving for buying and selling.
Safety of your money at the core
Curvo works with itsme to help you sign up to the app. Your investments are secure and regulated by the Dutch (AFM) and Belgian (FSMA) finance regulators. You can also withdraw your funds when you wish and there aren’t any exit fees.
The easiest way to passively invest in Belgium
We built Curvo to solve all the complexities of passive investing. Our goal is to make good investing through index funds, ETFs and trackers easy and accessible to all Belgians.
The Nasdaq-100 has performed extremely well over the last 30 years compared to the rest of the stock market. And it's relatively easy for Belgians to invest in the Nasdaq-100 through an ETF.
However, the Nasdaq-100 does have its limitations for investors. The concentration in the US tech sector increases the likelihood of a bad outcome. In that case, diversification can help.
Through the S&P 500, you get exposed to other US companies besides those in the technology industry. And by investing in the Curvo Growth portfolio, you'll have even more diversification by investing in companies around the globe.
On top of that, an investment app like Curvo offers other advantages over managing your own investments through a broker. With Curvo, you invest in the right portfolio for you and your goals. And it's really easy to adopt good saving habits by automating your monthly contributions. After all, we built Curvo to take away all the complexities of good investing and we make sure you're set up for success over the long run!
What you should do now
Ready to invest? Here is an action checklist for you:
- Choose the Nasdaq-100 ETF you wish to invest in. The list on justETF can help.
- Choose the broker that makes the most sense for you. You can use our broker comparison tool to help you make a decision.
- Send money to the broker and hit that "Buy" button!
- Explore investing with Curvo if you want more diversified investments, or less hassle when investing.