ETFs
Everyone is talking about the Fidelity Nasdaq Composite Index ETF. Is this a good long-term option?
Some of the world’s biggest tech companies have driven this ETF higher over the past year.
THE Nasdaq Composite has soared over the past year and a half, emerging from a bear market and entering bull territory as investors flocked to the types of stocks the index is best known for: technology players. This was – and still is – the case for two reasons.
First, investors are eager to capture the high-growth opportunities that artificial intelligence (AI) offers early. Today, many technology companies develop and sell AI tools and platforms or use AI to improve their own businesses. This is already starting to pay off and could drive profits higher over time. Second, investors expect a better economic environment in the future and, to prepare for it, they are betting on growth stocks.
All of this pushed the Nasdaq higher, resulting in double-digit percentage gains for the Nasdaq. Fidelity Nasdaq Composite Index ETF (ONEQ -0.02%), an exchange-traded fund that tracks this benchmark. So, everyone is talking about this top-rated ETF because it has recently become a simple tool for generating fantastic returns. But is it a good long-term option?
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An easy investment
You may be wondering why I call this investment “easy.” This is because it does not require you, as an investor, to research individual stocks or closely monitor every move of a particular company. Instead, this ETF gives you immediate exposure to all Nasdaq companies, giving you the opportunity to benefit from the growth of many companies instead of betting it all on just a few stocks.
Now let’s look at the pros and cons of investing in the Fidelity Nasdaq ETF. The point I just mentioned is definitely a plus, and that brings me to the idea of diversification. An investment in this fund gives you instant diversification among many technology players and growth companies in other sectors such as communication services and consumer discretionary. So forget about the pressure of choosing the right stocks: it doesn’t exist when you buy shares of the Fidelity Nasdaq ETF.
Another benefit, also related to this diversification, is that holding shares of this fund reduces your risk compared to investing in a small handful of individual technology stocks. If some Nasdaq companies suffer, others that thrive can compensate to some extent, limiting the downside for investors.
Of course, the flip side is the only downside to investing in this or any other index ETF. You are unlikely to enjoy the types of explosive gains that can be had from the big market winners, due to the fact that your investment is spread across a large number of stocks. Even if, as part of your investment in this ETF, you have stakes in some skyrocketing technology stocks, your stakes in these will be relatively small. The same element of diversification that limits your risk also limits the extent of potential gains.
Examine the Fees Carefully
Another element that some may view as a negative of ETFs is their fees, which eat into investors’ returns over time. But that doesn’t mean you should avoid all of these funds. Instead, look for ETFs with expense ratios less than 1% – below this level the purchase will be worth it. The Fidelity Nasdaq ETF’s expense ratio – at 0.2% – clearly fits the bill.
This ETF has performed particularly well, as mentioned above, due to investor interest in technology stocks these days – companies categorized as information technology make up 48.5% of the fund, and the communications services sector – which includes big tech names like Alphabet And Meta — represents an additional 14.5%. And the fund’s most heavily weighted positions include Microsoft, Apple, NvidiaAnd Amazon, some of the best performers on the market in recent months and years. So now is the perfect time to invest in this fund.
What the story suggests
But investing isn’t about short periods of time: it’s about making your money grow over the long term. Can the Fidelity Nasdaq ETF do the trick? Yes. And here’s why. Today, the index and this index ETF that tracks it are going through a period of growth. Historically, these periods of growth were eventually followed by phases of stagnation or decline, but until now, the Nasdaq Composite Index has always continued to recover from these corrections and reach new record highs.
If you hold on to the Fidelity Nasdaq ETF just for the short term during good times like right now, sure, you’ll score a win – but you’ll likely score an even bigger win if you hold on to the investment. long-term.
Of course, it’s always important to think about your investment strategy and risk tolerance before making a decision. If you are a conservative investor who favors dividend-paying stocks, for example, you may want to buy a few shares of this fund, but invest more in sectors such as healthcare or in an ETF that follows the largest S&P500 hint. But if you’re an investor who prioritizes growth, you may want to acquire shares of the Fidelity Nasdaq ETF.
Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of the board of directors of The Motley Fool. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adria Cimino has positions at Amazon. The Motley Fool holds positions and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Mad Motley has a disclosure policy.