S&P 500 or Nasdaq 100: which benchmark fits your portfolio?

The question is which index your portfolio should be compared with, the S&P 500 or the Nasdaq 100. The short answer is the index you would buy if you stopped picking stocks. An index your portfolio beats easily makes every dashboard green while you trail the alternative you would have chosen.

The value of benchmarking, argued in what it costs to never benchmark your portfolio, depends on the comparison being fair. A portfolio of AI and semiconductor names measured against a broad index can look good for years, with returns that a cheap technology tracker would have delivered without any stock-picking.

This article explains what each index is, how the two behave differently, how to choose between them, and what a comparison against both shows. It includes a worked example with round numbers.

What each index is

The S&P 500 is 500 large US companies, weighted by size. It is the usual stand-in for the market, even though it is US-only. The Nasdaq 100 is the hundred largest non-financial companies listed on the Nasdaq, which in practice means concentrated large technology companies.

The same few giants dominate both indexes, but the Nasdaq 100 is more concentrated. It rose further in 2023 and 2024 and fell harder in 2022.

Both are weighted by market value, so each company's share of the index matches its share of the group's total value. The largest companies dominate, and since the largest US companies are currently technology firms, both indexes lean towards technology. The difference is one of degree.

The S&P 500 dilutes its technology giants with hundreds of banks, insurers, oil companies, retailers, railroads and drugmakers. The Nasdaq 100 excludes financials by rule and contains few of the others, so the same giants make up a larger share of it and each one moves the index more.

Neither index covers the market as a whole. Both are US-only and both are large-cap only. For a European investor whose alternative is a world tracker, the closest comparison may be neither of these, which is covered at the end of this article.

How the two indexes behave

Because of that construction, the two indexes behave differently. The S&P 500 is the steadier of the two, with a broader sector spread, more of its return from slower-growing companies, and a meaningful share of its return from dividends.

The Nasdaq 100 is the same exposure with more amplitude. When growth and technology lead the market it tends to run ahead, and when interest rates rise or investors turn away from growth it tends to fall further. The fall of 2022 and the rebound of 2023 and 2024 are the recent examples.

This matters for benchmarking because a gap against the Nasdaq 100 means something different from the same gap against the S&P 500. Trailing the S&P 500 by three points in a year suggests your selections lagged the broad market.

Trailing the Nasdaq 100 by three points in a year when technology rallied may mean that you were less concentrated in the largest technology companies than the index, which is a different finding. The benchmark is also a statement about the risk you took on, and a gap has to be read with that in mind.

The rule for choosing

The rule is to benchmark against what you would buy instead. If you stopped picking stocks tomorrow and the money would go into a world ETF or an S&P 500 tracker, then that is your benchmark.

If you hold mostly semiconductor stocks, AI names and quantum ETFs, and you would otherwise buy a Nasdaq 100 tracker, then the Nasdaq 100 is your benchmark. Beating the S&P 500 while trailing the Nasdaq 100 then means that your technology picks did worse than a plain technology tracker.

Beating a benchmark you would never buy proves little. Trailing the one you would buy is the gap worth knowing about.

A worked example

In round numbers, your technology-heavy portfolio returns 18% in a year. A simulated index portfolio that received your deposits on the same dates would have made 12% in an S&P 500 tracker and 25% in a Nasdaq 100 tracker.

Against the S&P 500 you are six points ahead. Against the Nasdaq 100 you are seven points behind the no-effort version of your own strategy. On an average balance of €40,000, that seven-point shortfall is €2,800 in a single year, after all the research and trading, compared with buying a technology tracker once.

Both comparisons use the same portfolio and the same year. Only one of them describes the decision you face, because if you stopped picking technology stocks you would buy the technology index rather than a broad one. The flattering benchmark is arithmetically correct and answers a question you did not ask.

What a comparison against both shows

A comparison against both indexes answers questions a single benchmark cannot. Ahead of the S&P 500 but behind the Nasdaq 100 with a technology-heavy portfolio means your sector choice was right and your stock selection within it was not. Ahead of both suggests an edge, to be confirmed over a longer window. Behind both is unambiguous.

The two lines also split your result into layers. One part came from being in the market at all, one part from tilting towards technology, and one part from your specific names. A professional attribution report contains the same information, and here it comes from two simulated portfolios and your own transaction history.

How long a gap has to last

Benchmark gaps are noisy over short windows. A quarter in which you trail the Nasdaq 100 by four points, or lead the S&P 500 by five, says little on its own.

Concentrated portfolios in particular swing around any index, in both directions, for reasons that have nothing to do with skill. One earnings surprise in one of your larger holdings can produce a quarter of apparent skill or failure by itself.

The gaps that mean something are the persistent ones. A portfolio that trails its benchmark over three to five years, across a rally and a drawdown, shows a pattern rather than noise.

This is also why switching benchmarks after a bad stretch defeats the purpose. The index that matches what you would buy instead stays the benchmark through the years when it flatters you and the years when it does not. A benchmark that changes whenever the result disappoints measures nothing.

Three rules that keep the comparison fair

Whichever index you choose, three bookkeeping rules keep the comparison fair.

• Use the total-return version, with dividends reinvested, because your portfolio keeps its dividends. The price-only chart understates the index and flatters you.
• Replay your own cash flows into the index rather than comparing against its calendar-year number, because your money did not arrive on January 1. The method is walked through in how to check whether you are beating the S&P 500.
• Convert at the daily exchange rate on each transaction date if you invest across currencies. A euro investor's US returns include the dollar's moves, so the benchmark's must too. The mechanics are covered in multi-currency portfolio tracking.

Skip any one of the three and the comparison drifts in the direction that makes you look better.

Both lines on one chart

BullBenchmark simulates your deposits into the S&P 500 and the Nasdaq 100 at the same time, and either line can be switched on or off on the chart.

If your alternative is a world index, the two lines are still useful. The S&P 500 approximates the large-cap core that dominates most world trackers, and the Nasdaq 100 shows what a pure growth exposure did over the same period.

There is no perfect index. The useful question is which one you would have bought, and whether your own picks did better than that.

BullBenchmark reads the transaction export from your broker and shows your return next to the S&P 500 and the Nasdaq 100, fed with the same deposits on the same dates, in your own currency. The first two weeks are free and no card is needed.

Related: How to check whether you are beating the S&P 500