If you’re looking for just one stock to own, the SPY stock, or SPDR S&P 500 Trust (SPY) stock, is hard to beat. Just one deal instantly exposes you to the entire market and the S&P 500 at a very low cost. But should you sell it as the market drops?
want to own Microsoft Stock (MSFT)? And the apple Stock (AAPL)? also the alphabet (The Google)? All the high tech stocks are out there. And what about top consumer brands like Disney (DIS), Walmart (WMT) and now Tesla (TSLA)? Yes, those are in the spy as well. In fact, if you buy SPY stock, you instantly own all of the most popular shares in Standard & Poor’s 500. Just like that. No matter who wins, you win.
What is this stock that everyone owns?
What is SPY stock?
SPY is an exchange-traded fund that owns all the stocks in the Standard & Poor’s 500 Index. The S&P 500 is arguably the most important market metric used by investors and traders around the world – because it is the benchmark for trillion dollar investment.
The S&P 500 Index, created in 1926, tracks the rise and fall of the 500 largest stocks traded on US stock exchanges. The S&P 500 is widely seen as the ultimate barometer of the US stock market among most investors because of its outperformance over competitors.
What are the top 10 properties in SPY?
Since SPY owns all the shares in the S&P 500, his holdings are an open book. SPY gives more weight to stocks with larger market capitalizations, so you can see what their most important holdings are at any time.
It is important to note that SPY weighs stocks based on the value of the stock available for trading. This means that it is dominated by the largest companies. The 15 most valuable stocks in SPY stock account for nearly a third of their value. Now two companies are claiming more than 5% of SPY’s shares.
|a company||Code||Market value (billions of dollars)||Weighting in SPY|
|the alphabet||(The Google)||$1,528||3.8%|
|United Health||(United nations)||506 dollars||1.4%|
|Johnson & Johnson||(JNJ)||$439||1.2%|
Source: State Street as of August 26, 2022
Why is the S&P 500 better than the Dow Jones Index?
The Dow Jones Industrial Average is often cited in market talk. But the S&P 500 is seen as the true and accurate benchmark for US stocks. The quirks in how Dow Jones is calculated limit his appeal as a true measure of stocks. And the S&P 500 is a better measure of the market, for example, because it:
- wider: The S&P 500 index owns 500 shares for 30 of Dow Jones’ holdings.
- More representative of the “market”. The S&P 500 gives more weight to the companies with the highest market capitalization. It can be said that this method is superior to the Dow Jones Index. The Dow Jones index weighs stocks based on their prices per share. This has no logical meaning, as United Health (OH) It shouldn’t be given more multiplier effect than Walmart (WMT), simply because it trades at over $495 a share and Walmart is only $125. They weigh roughly the S&P 500, with an estimated value of around $400 billion.
- It is more than the rules. The S&P 500 relies less on human intervention. Changes have been made to both the Dow Jones and the S&P 500 as stocks are entered and taken out. And humans participate in the selection process with the S&P 500 and Dow. But because the S&P 500 owns nearly all of the big US stocks, there’s less judgment on what goes in and what goes out.
What is an ETF?
SPY is the most popular of nearly 2,000 ETFs that hold more than $3 trillion in investor assets, says the Investment Firm Institute. More than $379 billion is invested in SPY alone.
And ETFs, created over 25 years ago, are now among the world’s fastest growing investment vehicles. Like mutual funds, ETFs are investments that hold a wide range of other investments.
And ETFs can own everything from individual stocks, such as SPY stocks, to bonds, commodities, and currencies. Almost all ETFs own the investments dictated by the index. SPY owns shares in the S&P 500, the most popular index. But other ETFs hold shares in other indices such as small stocks and mid-size stocks. You can also buy ETFs that only hold growth stocks or troubled stocks called value stocks. Some ETFs buy shares held in specific sector indices, such as information technology or utilities.
There are also more exotic ETFs. Some “inverse ETFs” rise in value when the market goes down. And some of its own commodities such as gold or silver.
What are the main sectors in SPY?
Another advantage of SPY stock is that it spreads your investment dollars across all 11 sectors. In just one trade, you own technology stocks, consumer stocks, utilities, and all the rest. Once again, the SPY stock gives more weight to the sectors that contain the most valuable stocks.
Not surprisingly, the SPY stock is dominated by technology with huge tech stocks occupying most of the top positions. Tech stocks account for more than a quarter of SPY’s stock, followed by healthcare with just 13%.
Some may be concerned that SPY stock is being loaded with winning sectors. But remember that sector weights will change if another sector starts to outperform.
|section||SPY % weight|
Source: State Street as of August 26, 2022
Can you buy only one sector of SPY stock?
The SPY stock is designed to show you all 11 sectors. But you may want to own a few sectors. You may also want to increase your exposure to certain sectors, for example technology. And there are S&P 500 ETFs that only track one sector.
Why is the SPY stock important?
SPY stock is the oldest and largest ETF, largely because it was the first to track the S&P 500 index. If you buy SPY stock, you own all the shares in the S&P 500. That’s a compelling proposition. The ETF’s sponsor, State Street, says investors own more than $340 billion in SPY stock. And nearly $18 billion worth of shares are traded daily, a testament to the massive demand for the shares.
What other options are there? how much do they cost?
SPY is the largest ETF tracking the S&P 500 index, but it faces stiff competition. SPY is sponsored by State Street Global Advisors, but not the underlying S&P 500 index. The S&P 500 Index is owned by S&P Dow Jones Indices, a company that licenses the right to use the index. This means that anyone else is open to offering competing S&P 500 ETFs, if they pay the fee. There are many companies that offer S&P 500 ETFs.
Therefore, pay attention to volume and fees with S&P 500 ETFs. You don’t want to overpay for what should be your least expensive and least essential possession. SPY’s share fee is very low, only 0.095% per annum. This means that if you invest $25,000, you will pay only $23.75 annually. Compare that to the $137.50 you’d pay annually if you owned a common stock mutual fund that charges 0.55% annually.
Pay Less to Own Shares in SPY
But some S&P 500 ETFs charge lower fees. For example, State Bank offers the SPDR Portfolio S&P 500 ETF (SPLG), which tracks the S&P 500 (previously tracking the 1,000 largest US stocks). But it only charges 0.03%. It is just one example of a “clone” ETF with lower fees. These ETFs can save you money.
Then there’s the Vanguard S&P 500 ETF (VOO), which charges just 0.03%, making it 0.01% cheaper annually than the iShares Core S&P 500 ETF (IVV) at 0.04%. If you invest $25,000, it will save you $2.50 per year. Most of the big brokers will also allow you to buy any of these ETFs without paying any trading commission.
|ETF||Code||Assets (in billions of dollars)||expense ratio|
|SPDR S&P 500 ETF Trust||spy||$379||0.095%|
|iShares Core S&P 500 ETF||IVV||309 dollars||0.04%|
|Vanguard S&P 500 ETF||airline||$275||0.03%|
|Schwab American Big Capital Fund||SCHX||$30||0.03%|
|SPDR S&P 500 wallet||SPGL||14 dollars||0.03%|
Does SPY Pay Dividends?
Sure, SPY pays dividends. SPY Stock collects the dividends issued by all the dividend-paying stocks in the S&P 500 – and pays them to you. Currently, the dividend yield on SPY is approximately 1.5%. This means that if you invest $25,000 in SPY shares, you will receive $375 annually, paid quarterly, on your investment.
SPY Stock – Is it Buy Now?
If you are a long-term investor, any time is a good time to buy SPY shares. Given how versatile it is, SPY is the ultimate “set it and forget it” stock. In the long run, the S&P 500 has returned 9.9% annually on average since 1928 including earnings, says IFA.com. You’ll be hard-pressed to find many better low-cost plays that you can keep forever. Also keep in mind, if you buy and hold SPY stock, you will receive quarterly dividend payments.
Even famous investor Warren Buffett often recommends an investor to buy and hold the S&P 500.
Spy Technical Analysis – Is It Buy Now?
On the other hand, some investors use SPY stock more tactically. They rush in and out to catch market movements. If you are this type of investor, you will need to pay more attention to technical procedures in the broad market.
The IBD Market Indicator will tell you if the S&P 500 is in a confirmed uptrend and if it is now a good entry point. Today’s stock market shows you breaking trends in the market that will tell you whether you should be in SPY stock in the short term, or out.
A final point. That’s right, with SPY, you have the biggest big cap winners. But since you own all of the S&P 500 shares, you own all the dogs, too. That can be a problem when stocks of the S&P 500 giants drop.
Likewise, given that SPY owns a lot of shares, it is common for giant gains to barely make an impact on the overall performance of an ETF. And if the stock is only 0.5% of the index, even if it goes up, it won’t move the needle much.
However, given its issues, SPY shares are an essential property that has a role in the portfolio of nearly every investor.
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