There's a lot of noise surrounding investing. You have constant earnings releases, a never-ending news cycle, self-proclaimed "experts" throughout social media, and plenty of other distractions that make investing seem much more complicated than it has to be.
You don't need to read financial statements for hours or track every market movement to be a successful investor. There are much simpler approaches that are just as effective. For investors looking to simplify their investing strategy while still being in a position for good returns, the SPDR S&P 500 ETF Trust (SPY +1.22%) can be a one-stop shop to get the job done.
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Key Data Points
You don't become this popular by accident
The S&P 500 (^GSPC +1.20%) is the stock market's most popular index, tracking the largest 500 public U.S. companies by market cap. A handful of S&P 500 exchange-traded funds (ETFs) mirror the S&P 500, but none are as popular as the SPDR S&P 500 ETF Trust, which leads all ETFs in assets under management (AUM). For perspective, the second-largest ETF has $100 billion less in AUM.
Considering the depth of its coverage, an investment in the S&P 500 is seen as an investment in the broader U.S. economy. It contains leaders from all major industries, blue chip stocks, and companies at the forefront of innovation and market trends.
If you're relying on one ETF to be your one-stop shop, you want to ensure it has the world's top companies leading the charge, and the SPDR S&P 500 ETF Trust checks that box. It's the sweet spot between stability and growth potential.
Covering a lot of ground with one investment
One of the best benefits of ETFs is the amount of ground you can cover with a single investment. The SPDR S&P 500 ETF Trust specifically contains companies from all 11 major sectors:
- Information technology: 28.96%
- Financials: 12.92%
- Healthcare: 12.69%
- Consumer discretionary: 10.90%
- Communication services: 8.69%
- Industrials: 8.37%
- Consumer staples: 6.26%
- Energy: 3.93%
- Real estate: 2.47%
- Utilities: 2.41%
- Materials: 2.40%
Since the SPDR S&P 500 ETF Trust is market-cap-weighted, the information technology sector has a lot of representation, but even with it skewed a bit toward technology, the ETF is relatively diversified.
Having investments spread across sectors helps reduce some risk because you're not overexposed to too few industries. Sectors like financials, energy, and consumer discretionary are cyclical, so this diversification balances out cyclical volatility with more stable sectors like consumer staples and healthcare. That's a major key to sustained long-term growth.
It's hard to argue against the results
The SPDR S&P 500 ETF Trust has been around since January 1993, and since then, the results have been fairly decent. Looking at its total returns, a $10,000 investment at that time would be worth over $184,000 today. That's averaging 9.9% annual total returns.
It's stepped it up a notch in the past 15 years, averaging roughly 13.7% annual total returns.
A lot of the ETF's growth in the past couple of decades can be attributed to the growth of megacap tech stocks and the technology sector in general. There's no way to know how the ETF will perform going forward, but there aren't any glaring signs of it regressing in the long term.
To show how effective consistent investments in the SPDR S&P 500 ETF Trust can be, let's just assume it averages 10% annual returns over the next 20 years. Here's roughly how different monthly investments would stack up at the end, taking into account the ETF's 0.0945% expense ratio:
| Monthly Investment | Personal Contributions | Ending Value |
|---|---|---|
| $250 | $60,000 | $169,900 |
| $500 | $120,000 | $339,900 |
| $1,000 | $240,000 | $679,900 |
| $1,500 | $360,000 | $1.01 million |
| $2,000 | $480,000 | $1.35 million |
Data source: Author calculations. Ending values are rounded down to the nearest $100 or $0.01 million.
It all comes down to consistency
People are sometimes misled into thinking they must time the market perfectly or hit big on a once-in-a-generation investment to achieve significant success. In actuality, it usually only takes time and consistency. Time and consistency are to successful investing what water is to a thriving garden.
By making regular investments in the SPDR S&P 500 ETF Trust, investors can reap the benefits of compounded growth and U.S. economic growth over time.
