The S&P 500 has been on an excellent growth trajectory through 2024, returning more than 26% for the year leading up to December 27th. As a proxy for the U.S. economy as a whole, the index demonstrated that the economic environment is strong and continues to grow overall. Speaking. Of course, this doesn’t mean that all stocks – or even all stocks in the S&P 500 index – performed at the same level. Indeed, investors looking for standout individual companies over the past year should keep in mind that their bar for beating the market is quite high.
Many investors make a wide range of S&P 500 ETFs or similar products a staple of their portfolio. Funds such as the SPDR S&P 500 ETF Trust. NYSEARCA: SPY or iShares Core S&P 500 ETF. NYSEARCA: IVV offer a simple way to access the entire index with minimal effort on the part of the individual investor. Whether you already include one or more of these funds in your portfolio or not, there may be reasons to consider increasing your portfolio’s allocation to focus more on the S&P.
Winning the Cost Ratio War
Vanguard S&P 500 ETF Today
Vanguard S&P 500 ETF
(As of 12:10 pm ET)
- 52 week range
- $428.64
▼
$559.96
- Dividend yield
- 1.09%
- Assets under management
- $592.52 billion
Expense ratios—the fees investors pay ETF managers to cover expenses such as oversight and portfolio administration, among other things—have a huge impact on the long-term performance of S&P 500 ETFs. SPY, the first-ever ETF and still the largest of all S&P ETFs 500, with more than $632 billion in assets under management as of December 26, 2024, has an expense ratio of 0.09%. Vanguard S&P 500 ETF NEWSIRKA: FLIGHTanother major player in the industry, but with a smaller asset base of $583 billion at the time, has an expense ratio of 0.03%, or a third of SPY’s value. It’s true that both of these fees are small compared to the broader ETF space, but the difference will increase over time for investors buying and holding for a long period.
Perhaps more importantly, investors should note that ETF providers have had an incentive to lower fees on S&P 500 funds as an incentive to attract more assets—since the funds track the same index and are often functionally the same, the expense ratio is the same. just a few indicators that can sway investors towards one fund or another.
Dollar-cost averaging dominates
Investors with assets already concentrated in the S&P ETF will nonetheless likely benefit from continuing to invest in these investments over time through dollar-cost averaging. Since the S&P 500 index as a whole tends to rise over time (it hit new records dozens of times in 2024 alone), it’s likely that, despite inevitable downturns, it will continue to make new highs in the future. By periodically investing in S&P 500 funds, even when the index is at or near record highs, investors benefit from the principles of dollar-cost averaging to maximize potential future returns.
Investors may look at the recent performance of the S&P 500 Index and assume that buying the S&P ETF means buying at the top – generally an investment strategy to avoid! However, historically, no matter how high the S&P 500 is now, it will likely only rise over the long term.
Advantages over other funds
SPDR S&P 500 ETF Portfolio Today
SPDR S&P 500 ETF Portfolio
(As of 12:10 pm ET)
- 52 week range
- $54.87
▼
$71.64
- Dividend yield
- 1.09%
- Assets under management
- $55.26 billion
Investors have many other ways to gain exposure to the S&P 500, including a growing number of mutual funds and index funds. However, ETFs often outperform on expense ratios, especially when compared to Class C mutual funds, which often have significantly higher expense ratios.
ETFs such as SPDR Portfolio S&P 500 ETF NYSEARCA:SPLG may also have an advantage over some other S&P 500-focused funds because the latter may experience a higher degree of tracking error when the contents of the fund’s portfolio differ somewhat from the index itself and thus produce different results over time. Funds may also rebalance at different intervals, potentially contributing to tracking errors or a lack of transparency about portfolio contents to investors.
Before you consider the SPDR Portfolio S&P 500 ETF, you should hear this.
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