For those who want to invest in S&P 500 index stocks, here is a cost-effective option to create wealth over the long term. SPDR S&P 500 ETF Trust, popularly known by the name SPY in the US stock market circle, is the one to buy if you want to own the entire basket of stocks listed on the S&P 500 index.
One of the attractive features of SPDR ETF is its low expense ratio of 0.0945%. The expenses eat into the returns, the lower the ratio better it is for the investor.
Exchange-traded funds that are managed passively are benchmarked against an index in exactly the same proportion as that of the index that it tracks. In that way, SPDR S&P 500 ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index. What this means is that as an investor of SPDR S&P 500 ETF Trust, you can safely assume the returns in line with the returns generated by the S&P 500 index.
As of August 16, 2022, S&P 500 at 4,305.20 is lower by 9.67% year-to-date while the SPDR S&P 500 ETF Trust with a NAV of $428.55, is lower by 10% YTD.
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By investing in SPDR S&P 500 ETF Trust, you end up getting exposure to some of the well-known names of the US stock market. From Microsoft, Apple and Amazon to Meta (Facebook parent company), Berkshire Hathaway, Visa and many more, the world’s best companies can be a part of your portfolio. Information Technology, Health Care and Communication Services are the top three sectors totaling about 50 percent of the S&P 500 index.
Launched in January 1993 SPY is the very first exchange-traded fund listed in the United States. SPDR S&P 500 ETF pre-dominantly holds large-cap US stocks and consists of a portfolio representing all 500 stocks in the S&P 500 Index.
As of Aug 16, 2022, the total Assets Under Management of the SPDR ETF were about $393,751.77 million and the NAV was $429.68.
The long-term performance of SPDR ETF has been in double digits. Over the 10-year period (as of June 30, 2022), the compounded annualized return has been nearly 12.82 percent, while the 3-year and 5-year return has been about 10.47 percent and 11.16 percent, respectively.
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SPDR ETF is traded on major US Stock Exchanges and it’s easy to trade in them. Similar to buying equity shares, you can buy SPY ETF through a brokerage account registered in the US. And once invested, you can also use traditional stock trading techniques such as stop orders, limit orders, margin purchases, and short sales using ETFs.
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Investing in the stock market is risky as equities as an asset class are inherently volatile. However, over the longer term horizon, the risk subsides and equity values tend to drift upwards. Therefore, holding stocks over longer tenure is suggested to minimize risk and volatility. The key to generating inflation-adjusted high returns from equities is the right selection of individual stocks. It is important because not all stocks in your portfolio could be multi-baggers. The solution is to hold a bunch of stocks together through a mutual fund or an exchange-traded fund (ETF).