The Nasdaq-100 vs. the "Magnificent Seven": What's the Better Investment Today?

Are you better off investing in the best of the best, or holding a mixed bag of stocks that can help diversify your portfolio? That's always a big question for growth investors, particularly when looking at the long term, and it can depend on your overall strategy.

The "Magnificent Seven" is a collection of the leading companies in the world: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. You can track all those stocks individually or through an exchange-traded fund (ETF), such as the Roundhill Magnificent Seven ETF (NYSEMKT: MAGS).

Another option is to track the top stocks on the Nasdaq exchange, via the Nasdaq-100 index. This will include not only the Magnificent Seven but many other growth stocks as well. The index gives investors exposure to the top 100 non-financial stocks on the exchange, resulting in a much more diversified portfolio.

Which investment option is the better one to consider today?

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The case for the Magnificent Seven

If you want exposure to the best of the best, you may simply want to track the Magnificent Seven. How these companies do will dictate how the broader tech sector performs. And they'll also have a significant impact on the overall market.

This year, while the S&P 500 has risen by close to 15% (as of Oct. 20), the Roundhill Magnificent Seven ETF has risen by 20%. For investors who want to simply focus on the best growth stocks, it makes sense to invest in just the top companies in the world.

While diversification can help minimize your overall risk, it can also limit your returns. Over the past five years, the only Magnificent Seven stock that hasn't outperformed Nasdaq-100 and its 115% gains is Amazon -- it has risen by just 35%. But all the other Magnificent Seven stocks have outperformed the Nasdaq-100, in some cases, by wide margins.

Investing in the Roundhill ETF can make for an ideal option, particularly if you're a fan of these stocks.

The case for the Nasdaq-100

Investing in the Nasdaq-100 index has also yielded market-beating returns. The Invesco QQQ Trust (NASDAQ: QQQ), which tracks the index, has generated similar year-to-date returns as the Roundhill fund of about 20%.

The big advantage of tracking the Nasdaq-100, however, is that there is going to be much more diversification for investors, but it's still largely going to be a tech-dominated investment. The benefit is that the make up of the index will change over time. With the Magnificent Seven, if you invest in the Roundhill fund or simply hold those stocks yourself, you can potentially miss out on high-flying growth stocks that might generate far better returns.

With the Invesco QQQ Trust, you can invest in the ETF and always know that you will have a diverse portfolio of growth stocks that will rebalance over time. And over the past decade, the fund has soundly outperformed the S&P 500 with gains of 465% (versus 232% for the broader index).

Which investment is the better one today?

The Magnificent Seven stocks have been high performers over the years but whether those trends will continue in the future is by no means a guarantee, especially with many of their valuations becoming inflated along the way. The same can be said for tech as a whole. But that also highlights the importance of having a bit of a more diversified approach right now, to limit some of that exposure while still being well-positioned to generate strong returns over the long haul.

The Nasdaq-100 does a great job of balancing that for investors, and that's why I think it could make the best option for growth-oriented investors today.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.