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The U.S. stock market is said to have more than 5,000 indices. However, despite the large number of indices, not all of them are used by investors. In fact, most traders and investors use only two major stock indices to track the performance of the U.S. market. This includes the NASDAQ Composite and the Dow Jones Industrial Average. Continue reading to find out all about these two indices including the difference between the Dow Jones and the NASDAQ. 

What is the NASDAQ Index?

Now, before we check out a comparison of NASDAQ vs Dow Jones, let’s take a detailed individual look at each index starting with the NASDAQ index. 

 

NASDAQ is an acronym for the National Association of Securities Dealers Automated Quotations. It is one of the two primary U.S. stock exchanges, with the other one being the New York Stock Exchange (NYSE). 

 

To make it easier to track the performance of the stocks listed on the NASDAQ and the U.S. stock market at large, the stock exchange created the NASDAQ Composite in 1971. Also, known as the NASDAQ index, the NASDAQ Composite consists of over 3,700 stocks listed on the exchange. The index uses the traditional market capitalisation-weighted method of ranking its constituents. 

 

Since NASDAQ is home to almost all of the technology companies in the U.S., more than half of the index is made up of companies from the sector. The top 5 companies in the index ranked in order of market capitalisation include Apple, Microsoft, Amazon, Tesla and Alphabet. 

What is the Dow Jones Industrial Average?

Now, let’s take a look at the Dow Jones before moving on to the detailed comparison of the NASDAQ vs the Dow Jones index. 

 

The Dow Jones Industrial Average (DJIA), also known as the Dow Jones, is a broad market index. It consists of 30 of the largest and most prominent companies listed in the U.S. stock market. The index includes entities from both the premier U.S. stock exchanges - the NASDAQ and the NYSE.

 

Created in 1896, the DJIA is one of the world’s oldest indexes with a rich history of over 138 years. Named after its creator, Charles Dow, the Dow Jones index primarily consisted of companies from the ‘heavy industry'. However, as time passed, companies from other sectors made their way into the index. 

 

Unlike the NASDAQ Composite, the Dow Jones Industrial Average uses the price-weighted method of ranking its constituents. The top 5 companies present in the DJIA in terms of their weightage include the UnitedHealth Group, Goldman Sachs, Home Depot, Amgen and McDonald’s. 

NASDAQ Index vs Dow Jones: The Differences

 

With both of these indices out of the way, let’s move on to the differences between the Dow Jones and the NASDAQ. 

Particulars

NASDAQ Composite

Dow Jones Industrial Average

Established in

Created in 1971

Created in 1896 

Created by

Created by the NASDAQ stock exchange

Created by Charles Dow, an American journalist

Consists of 

Only consists of companies that are listed on the NASDAQ stock exchange 

Made up of companies that are listed on both the NYSE and the NASDAQ exchanges

Total Number of Constituents

More than 3,700 companies

30 companies 

Type of Stocks

Primarily consists of technology companies and other entities that are in the growth phase of their businesses

Primarily consists of some of the oldest and the most well-established companies across multiple industries 

Index Construction Methodology 

Constructed using the market capitalisation-weighted approach

Constructed using the price-weighted method 

Major Sectors

Information technology, consumer discretionary and industrials

Financial services, pharmaceuticals and information technology

Performance

Primarily dependent on the technology industry

Performance is not based on a single industry but rather on all of the 30 stocks combined 

Volatility

Can be volatile at times due to the presence of mid-cap and small-cap companies

Far less volatile since the index consists only of large-cap and well-established companies

Total Market Capitalisation 

$30.14 billion as of December 31, 2022. 

$9.67 trillion as of December 31, 2022. 

Conclusion

With this, you must now be aware of what the differences between the Dow Jones and NASDAQ indices are. Despite the differences between the NASDAQ index vs the Dow Jones Industrial Average, both of them are good investment options. However, since they’re indices, you cannot invest in them directly like stocks. Instead, you can purchase units of index funds or Exchange Traded Funds (ETFs) that replicate the performance of these two indices.

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