The Nasdaq and the New York Stock Exchange (NYSE) are two American stock exchanges that trade securities. These two marketplaces account for the majority of trading that takes place not only in the United States but around the world. Companies list their shares on these exchanges so investors can make trades. But did you know you can invest in the exchanges as well?
There are a couple of ways you can do so. The most common ways are to:
- Invest in the companies that own these exchanges, both of which are public companies. Nasdaq shares trade under the ticker symbol NDAQ on the Nasdaq. The NYSE is owned by Intercontinental Exchange Group, which trades under the ticker symbol ICE on the NYSE.
- Purchase shares of the exchange-traded funds (ETFs) that track the indexes on these two stock exchanges. While you can't purchase shares in the indexes of these exchanges, the ETFs that track them try to mirror their performance.
- The Nasdaq and New York Stock Exchange are both exchanges that trade securities.
- Both exchanges are owned by public companies.
- Investors can invest in these exchanges by purchasing shares of the public companies that own them.
- Those who want to invest in the holdings of these exchanges can buy shares in ETFs that track their indexes.
- Two popular ETFs include the Invesco QQQ ETF, which tracks the Nasdaq, and the SPDR DIA ETF, which tracks the Dow Jones Industrial Index.
Nasdaq and New York Stock Exchange (NYSE): An Overview
The Nasdaq was founded in 1971 to enable investors to trade securities on a speedy, transparent computerized system. It is the world's first all-electronic exchange and operates 29 markets in stocks, fixed income, commodities, and derivatives in the U.S., Canada, the Baltics, and Scandinavia. There are more than 3,900 companies listed on the exchange. The majority of these corporations are in the technology sector, including Apple (AAPL), Microsoft (MSFT), and Amazon (AMZN) among others.
New York Stock Exchange (NYSE)
The NYSE was founded in roughly 1792 when 24 brokers signed what is known as the Buttonwood Agreement, setting some agreed-upon ground rules for securities trading. It is based in New York City and is the largest equity-based exchange in the world. The exchange lists more than 2,300 companies that represent a variety of different sectors, including energy, utilities, financials, and industrials among others.
Investing in the Exchanges
As noted above, there are a few ways you can invest in these stock exchanges: Purchasing shares in the companies that own them and buying shares in the funds that track them.
Buying Shares in Corporate Stock
The fact that you can invest in the public companies that own both exchanges doesn't mean that you should. Each company needs to be evaluated on its own merits and compared against your unique needs, goals, and risk tolerance—the same way you would with any other company.
Before you invest in any stock, review all relevant company information. You can find important details about the financial health and progress of a company by examining its balance sheet, income statement, cash flow statement, and footnotes through the annual report or 10-K. The 10-K report must be published as per the Securities and Exchange Commission (SEC) and can be found on individual company websites or on EDGAR, the SEC's public database.
Once you complete your analysis, determine the potential return and volatility of the stock and whether that fits your profile. You may also want to consider how the stock fits into your portfolio. Most investors seek a diversified portfolio with the hope of achieving a target return while taking on the least amount of risk.
Having a more concentrated portfolio increases the risk of a big loss, but it also increases your total return potential. A stock's risk and return profile affects the total portfolio's risk and return profile, though by moving in the opposite direction of other holdings, a risky stock has the potential to make an overall portfolio less risky.
Individual Stocks vs. Index Funds
Modern Portfolio Theory (MPT) advocates diversification to reduce your risk. It can be difficult to properly diversify a portfolio when picking stocks one at a time. One easy way to overcome that challenge and diversify is to invest in a mutual fund or an ETF that tracks a larger index fund.
As noted above, there are a few ETF options out there that can help you benefit from investing in these exchanges. While many ETFs have stocks from both exchanges, the following ETFs can help you track the performance of some of the main indexes of these exchanges.
Nasdaq is tracked by the QQQ ETF, which contains some of the most widely held stocks on the Nasdaq. The DIA ETF tracks the DJIA, one of the most widely followed indexes on the NYSE.
The Invesco QQQ (QQQ) tracks stocks within the Nasdaq-100 Index and is one of the most popular ETFs. The index includes 100 of the largest domestic and international nonfinancial companies that are listed on the Nasdaq Stock Market. The QQQ ETF has an expense ratio of 0.20% and a market value of $155.75 billion.
QQQ has about half of its holdings that belong to the information technology sector, with more than 80% of the ETF being from three sectors. As such, it's not as diversified as other ETFs. Some of the sectors that are represented in the fund as of May 31, 2022, along with their weightings, include:
- Information Technology: 49.87%
- Communication Services: 17.19%
- Consumer Discretionary: 15.40%
- Consumer Staples: 6.52%
- Health Care: 6.37%
- Industrials: 3.32%
- Utilities: 1.34%
Top 10 Holdings
Below are the top 10 stocks within the QQQ ranked by the percentage of their portfolio weighting.
|QQQ ETF’s Top 10 Holdings|
|Holding||% QQQ Portfolio Weight|
|Meta Platforms (META)||3.05%|
Below is the performance of the Invesco QQQ over the last few years:
|Annualized Performance of QQQ ETF versus Nasdaq 100 Index|
|QQQ ETF||Nasdaq 100 Index|
SPDR Dow Jones Industrial Average ETF Trust
The SPDR Dow Jones Industrial Average ETF Trust (DIA) tracks companies in the DJIA, which are chosen by a committee of editors from the Wall Street Journal. The 30 companies within the index must be substantial and represent a significant amount of U.S. economic activity. The fund has an expense ratio is 0.16% and over $26.81 billion in assets under management (AUM).
Some of the sectors that are represented in the fund as of June 23, 2022, along with their weightings, include:
- Health Care: 21.80%
- Information Technology: 21.17%
- Financials: 15.07%
- Consumer Discretionary: 13.47%
- Industrials: 13.26%
- Consumer Staples: 7.92%
- Communication Services: 3.15%
- Energy: 3.06%
- Materials: 1.10%
Top 10 Holdings
Below are the top 10 stocks within the DIA ranked by the percentage of their portfolio weighting.
|DJIA ETF’s Top 10 Holdings|
|Holding||% DIA Portfolio Weight|
|Goldman Sachs (GS)||6.15%|
|Home Depot (HD)||5.91%|
|Visa Class A (V)||4.22%|
|Johnson & Johnson (JNJ)||3.86%|
|Honeywell International (HON)||3.75%|
Below is the performance of DIA over the last few years as of May 31, 2022.
|Annualized Performance of DIA ETF versus DJIA Index|
|DIA ETF||DJIA Index|
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New York Stock Exchange. "American Stock Exchange Historical Timeline," Page 2.
New York Stock Exchange. "The NYSE Listed Company Network."
U.S. Securities and Exchange Commission. "Form 10-K."
U.S. Securities and Exchange Commission. "EDGAR Company Filings."
Invesco. "QQQ Monthly Review."
State Street Global Advisors. "SPDR Dow Jones Industrial Average ETF Trust DIA."
Invesco. "Invesco QQQ."
State Street Global Advisors. "SPDR® Dow Jones® Industrial Average ETF Trust."