S&P 500 ETF SPY, In this post I’d like to answer the biggest question that every investor in the world asks:
What is the S&P 500 ETF Spy and is it possible to retire just by buying it?
Table of Content
- Understanding the S&P 500 ETF – SPY
- How the S&P 500 ETF SPY Has Performed
- Pons and Cons
- Risk
- The Bottom Line
Understanding the S&P 500 ETF – SPY
So, let us begin with an overview of the overall index.
The s&p 500 is the standard poor’s 500 index which tracks the 500 largest companies in the united states of America the largest companies.
Since their inception in 1926, they’ve generated an average annual return of 10.49 percent
but only in 1957 did the S&P 500 include the 500 companies you know today.
the average annual return every single year has been 10.67 percent.
So even with 1987, 2000, 2008, 2018, and 2020 drops,
the s&p 500 has averaged annual returns of over 10 percent.
but is it possible to buy only the spy, which is an s&p 500 ETF, and retires from it?
As I said, the S&P 500 Index launched back in 1926 and since its inception,
it used as one of the most common ways to evaluate the stock markets
and the economy as a whole.
Every investor is probably somewhat familiar with it. constantly quote in newspapers and news.
Although many believe that the index doesn’t reflect well the true health of the economy,
it uses repeatedly to assess the market as a whole.
Facts about the S&P 500 ETF – SPY
The U.S. economy is growing steadily,
which is why many investors view the S&P 500 as an essentially risk-free investment.
When you invest in the index, you’re buying 500 of America’s largest and most powerful companies.
Investors around the world don’t have the funds to buy 500 individual stocks.
Instead, those who want to invest in the index often buy ETFs that track the index itself,
such as the SPDR S&P 500 ETF, which goes by the acronym Spy.
I would like to reiterate that an index isn't an ETF and an ETF isn't an index.
An ETF is simply trying to track an index, i.e. the S.P. 500 is made up of 500 companies and the ETF spy will also be made up of those 500 companies
This ETF matches the price and yield of the index, and with a single ticker, you can own the entire basket of stocks that make up the S&P.
Is SPY a Stock or an ETF?
The SPY is an ETF. An exchange-traded fund (ETF) is the general term for a type of security that combines or tracks multiple stocks within an index, industry, or another grouping.
SPDRs are a type of specific ETF, issued by State Street Global Advisors that tracks a specific index such as the S&P 500.
ETFs trade like regular stocks, but they represent a portfolio of stocks rather than just one company.
What Does SPDR Stand for?
SPDR stands for Standard & Poor’s Depositary Receipt. SPDR ETFs have a fixed number of shares that are exchanged and traded like stocks on the open market.
How the S&P 500 ETF SPY Has Performed
So what’s the average return on this common, safe and reliable investment?
Well, this question is much more complex than you think.
Let’s start with a look at history. In 1926, when the index was created, the S&P was still called the Composite Index and included only 90 stocks.
If we ignore that and track the performance anyway, the average return over the last 93 years is a whopping 10% per year. Not bad. But if we look at the average return since 1957, the year the S&P actually included 500 stocks as we see it today, the average return is 8% per year. Not bad either.
One of the biggest problems for investors hoping to regularly earn the average 10% return is inflation. Today’s money isn’t worth the same as tomorrow’s. That’s simply the reality in our economy. If we adjust for inflation, the historical average return drops to 7%. But that may not be true at all.
Whether this inflation-adjusted average is correct is debatable. The inflation calculation is based on the consumer price index, whose figures are disputed. Some analysts strongly believe that the CPI vastly underestimates the true inflation rate.
So it’s hard to know what to believe, and the true rate of return becomes an opaque mess. When entering the market has a big impact on the average investor’s return.
Pons and Cons
The average mutual fund has an expense ratio between o1-1.5%, and the expense ratio of S&P 500 ETF SPY is 0.09%, which means you’ve to pay 90 cents for every thousand dollars you put in there per year.
The great thing about the s&p 500 ETF Spy is that it accurately tracks the s p 500 index. it’s a weighted portfolio. the bigger the company, the more money in it has.
This S&P 500 ETF SPY is a basket of all these stocks, you’re diversifying into 500 companies by doing that.
Another advantage of ETFs is that you can bet on sectors that have taken quite a beating without having to guess which company it’s.
Better performance
Most actively managed funds like mutual funds and your own money don’t do as well as the stock market, but you get away with it because if you save every single year for 40 years, your financial planner can lose the market and still make four times your money.
the solution is very simple: buy everything, month after month, choose an amount that you’ll buy no matter how the market develops, and buy high and low over long periods of time, but on average you paid exactly that, that’s Dollar Cost Averaging.
a mutual fund costs a lot of fees, but more importantly, your financial advisor isn’t smart, he doesn’t know anything about investing, he’s just as emotional as you’re, he’s something called career risk, he’s to adapt to it, he’s to get as close to the market as possible, but they don’t really do that.
By investing as described above every month, you use the great magic trick that exists: Compound interest.
So if you want to retire by investing only in S&P 500 ETF SPY, you must be able to. Be able to follow through with a good process, but most people can’t.
Risk
For example, Spy, an ETF based on the S&P 500, had great performance between 1996 and 2000, but investors who bought in 2000 experienced a consistent downward trend for years. Investors who buy at market lows and hold their investments or sell at market highs will have greater returns than those who buy at market highs and then panic sell at big downswings.
For those who want to avoid the missed opportunity of selling during market lows, but don’t want to take the risk of active trading, Dollar Cost Averaging is a good option.
For all its complexity, investing in the S&P 500 has been a great investment in the past, and if you can use Dollar Cost Averaging to build a large position and hold it for years, you’re almost assured of success.
Just read Buffett’s $1 Million Challenge and you’ll understand the power of an index like the S&P. The best fund managers in the world can’t seem to beat it over the long term.
i think spy is a great ETF for you to invest in. You get a very diversified aspect of the market with a whole bunch of different companies. You’re more than diversified enough and you don’t have to worry about which company is going to be at the top
because we don’t know if Apple isn’t going to be one of the biggest companies in 5, 10, or 20 years from now.
if you’re in the s&p 500 and have so many shares, you can take advantage of these great opportunities.
The Bottom Line
A recent survey found that the average American has $ 1.7 million to set aside for retirement.
In my opinion, ninety-five of a normal person’s portfolio should most likely be in a very safe ETF that, as has been shown over the last century, yields close to 10% every year. One of that ETFs is one of the best-known is the S&P 500 ETF.
it’s important that you put a lot of your money into this ETF, due to the fact ETFs are low-expense ratio funds that follow the market.
the reason is that most actively managed mutual funds don’t beat the market in one year and over long periods of time they definitely don’t beat the market.
The great thing about investing in an ETF like the Spy is that you can keep your hands off it – it’s the most passive form of investment.
that’s all I have for you about the s&p 500 and the spy ETF. I hope you now have a better understanding of what the spy is.
If you would like to read more about wealth and Investing. Please check out my other post like: Investing for Beginners How To Get Started and Building Portfolio From Scratch