Want to Buy SPY? Here’s What to Consider

Learn more about the first ETF listed in the U.S. and how its holdings compare to others.
Mar 22, 2022

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1. What is SPY?

You may have caught a headline about "SPY stock." But no, you didn't stumble across an espionage-related tip. Neither is it a single stock. Instead, SPY is an exchange-traded fund, or ETF, that tracks stocks (often referred to as "equities") in the S&P 500 index, which includes around 500 of the largest U.S. publicly traded companies. More broadly, an exchange-traded fund is a basket of stocks, bonds or other securities that allows you to invest in many securities all at once.

State Street Global Advisors introduced SPY in 1993, making it the first exchange-traded fund of its kind. If you get confused by the name: SPY initially debuted as the SPDR, an acronym for the Standard & Poor's Depositary Receipts (pronounced "spider"). SPDRs are now considered a category of ETFs that track the S&P 500. Nearly three decades later, the market has grown to over 2,500 ETFs on U.S. stock exchanges. Today, State Street Global Advisors is one of the largest asset management companies in the world.

Here's how SPY ETF is performing today:

» Still confused about the S&P 500? Learn more about the stock index

2. How will SPY fit into your portfolio?

Whether SPY is right for you is unique to your financial situation, risk tolerance, time horizon and preferences. Ask yourself: Do you currently own only individual stocks and need diversification? Do you already have an S&P 500 ETF in your portfolio? How long would you like to be invested (i.e., when do you need your money back)?

One advantage of exchange-traded funds like SPY is diversification in a single purchase.

An S&P 500 ETF like SPY spreads your investment over at least 500 of the largest U.S. companies. The largest sector in the S&P 500 is information technology, which makes up 28.7% of the index. Since the goal of an S&P 500 ETF is to track the index, the top 10 stock holdings between S&P 500 ETFs don't vary greatly. Below are defined key terms and factors to consider when choosing an ETF like SPY.

Important ETF terms and factors

Assets under management, or AUM: The market value of the ETF, calculated by multiplying the total number of shares outstanding by the current price per share.

Expense ratio: What you pay per year to own a slice of the fund. You can also think of it as your annual management fee, expressed as a percentage of your investment.

Stock symbol: An abbreviation used to identify the ETF. In this case, SPY's namesake.

Time horizon: Even though you're diversified with an S&P 500 ETF, a stock ETF is often still more volatile than something like a bond ETF. The longer you're invested, the more time your investment has to grow and overcome any short-term stock market dips or corrections and approach the historical average stock market return of 10%.

A general guideline on stock investments: don't invest anything you may need in the next five years or so. Make sure your investment has time to recover from any dips and that you won't be forced to sell when the market is down if you do need that cash.

Total return: How much money you made or lost on an investment over time, including any regular cash payments from the investment, such as dividends.

The table below compares SPY to two comparable S&P 500 ETFs, VOO (Vanguard S&P 500 ETF) and IVV (iShares Core S&P 500). The data is current as of March 1, 2022.

ETF

SPDR S&P 500 ETF

Vanguard S&P 500 ETF

iShares CORE S&P 500

Assets under management

$399.1 billion.

$277.4 billion.

$317.7 billion.

Expense ratio

0.0945%.

0.03%.

0.03%.

Total market return since inception

10.38% (1993).

15.38% (2010).

7.34% (2000).

Stock symbol

SPY.

VOO.

IVV.

» Learn more: How to buy ETFs

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3. How should you invest in SPY?

So you're ready to buy SPY. Before you pass go, check in with your investment research, feelings and priorities. Do you have emergency cash savings on hand? Have you paid off high-interest debt or other financial priorities? Are you willing to part with your money for five years? Can you afford to lose the money?

Your next step may be to decide how to invest in SPY. You can always begin by purchasing a single share or even a fraction of a share if you're starting. Fractional shares allow you to portion shares based on an amount you can afford instead of purchasing at the whole share price.

Another conservative approach would be to use dollar-cost averaging, a strategy for buying in small increments over time, helping to spread your money and risk. The advantage is that while you might buy SPY ETF when prices are high, you're also regularly buying when prices are low.

However, if you've got the funds and the risk tolerance, investing your money in a lump sum is another option. Some prefer to invest their money as early as possible to give the ETF more time to grow rather than purchase smaller SPY ETF parcels over time.

Where to buy SPY: ETFs are traded like stocks and bought and sold through brokerage accounts, a type of account that allows you to buy, sell and trade securities like stocks, bonds and mutual funds.

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