Most physician investors are used to hearing the Nasdaq average quoted along with the Dow Jones Industrial Average or the S&P 500. This can be very helpful in taking the temperature of the market but can also provide an incomplete picture of what the Nasdaq really is. Nasdaq stands for National Association of Securities Dealers Automated Quotations, and according to Investopedia, the Nasdaq is really two different things.

The world’s first electronic exchange. The Nasdaq began as a global electronic marketplace for buying and selling securities and was created by the National Association of Securities Dealers (NASD), which is now known as the Financial Industry Regulatory Authority (FINRA). It was a groundbreaking concept in that it provided investors with the opportunity to trade securities on a computerized system that was quick and transparent. The need for trading room floor interactions was therefore eliminated.

In 2006, the Nasdaq broke from NASD and formed a national securities exchange. Nasdaq eventually merged with the Scandinavian exchange group OMX to become Nasdaq OMX and is now the largest exchange company globally.

Often quoted index. As referenced above, the Nasdaq is often thought of in its capacity as an index. An index is a statistical measurement of a specific portion of the market calculated to help investors get a sense of the movement of the economy. The Nasdaq Composite index, as it is formally known, contains the companies traded on the Nasdaq OMX. These companies are mostly internet and technology-related businesses, but there are also financial, consumer, and biotech industries included.

Some physician investors buy shares in Nasdaq index mutual funds or exchange traded funds (ETFs) to help achieve diversification in the technology sector. The Nasdaq has grown over the years to become a significant market indicator and an important piece of the overall economic outlook. It should certainly be considered as you strive to construct a diversified investment portfolio.