Is investing in this Dow Jones ETF right for you?
The SPDR Dow Jones Industrial Average Trust may be a good choice if you're looking for an ETF with domestic large-cap stocks. The fund's holdings could balance a portfolio that already includes mid-caps and small-caps, as well as an allocation to foreign companies.
Here are the benefits of the SPDR Dow Jones Industrial Average Trust:
- Invests in blue chip stocks: The Dow Jones tracks established companies with long track records of success, which reduces risk.
- Provides some diversification: Even though it doesn't have hundreds of stocks, this ETF invests in companies across a range of market sectors.
- Pays dividends: While there are plenty of ETFs better for dividend investing, the SPDR Dow Jones Industrial Average Trust has a reasonable dividend yield.
However, this Dow Jones ETF also has a few notable drawbacks:
- Only invests in 30 companies: This might not be the right ETF if you want a highly diversified fund for your portfolio or one that tracks the U.S. stock market.
- Uses a price-weighted methodology: Share prices don't necessarily indicate which stocks deserve a greater allocation.
- Companies chosen by committee: A committee decides which companies to add to or remove from the Dow. There are some selection criteria, but it's not as clear-cut as for companies in the S&P 500.
What to consider before investing in a Dow Jones ETF
Before investing in a Dow Jones ETF, consider whether it works well with your:
- Portfolio composition: You may want to invest if your portfolio is short on blue chip U.S. stocks. If you already invest in several of its holdings, or if you hold an S&P 500 index fund, then a Dow Jones ETF is likely redundant.
- Financial goals: A Dow Jones ETF makes sense if you want your portfolio to largely follow the market's overall performance. You're better off building your own portfolio if you're looking for market-beating returns.
- Risk tolerance: Since the Dow Jones Industrial Average tracks only 30 stocks, it's somewhat riskier than a more diversified ETF.