I have a good amount of money invested for my retirement. Almost all of it -- somewhere around 90% -- is invested in one single asset. It's the SPDR S&P 500 ETF Trust (SPY +0.95%)
It may seem crazy to have so much of my portfolio in just one ETF. But there are a few very good reasons why this makes sense for me -- and it may make sense for you, too.
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Consistent returns
The SPDR S&P 500 Trust is an exchange-traded fund that aims to track the performance of the S&P 500, consisting of around 500 large U.S. enterprises. The companies included have been chosen to represent the broader economy, and the index is market-cap weighted, so the biggest ones have the greatest weight and the most influence over how the index performs (which is a good thing, since the largest stocks often perform the best).
The S&P 500 is a widely used benchmark used to express how the broader stock market is doing, so investing in it is basically like making a big bet on a diverse array of large companies across different industries.
Unsurprisingly, this is usually a winning bet. In fact, the S&P 500 index consistently produces 10% average annual returns over the long haul. Funds like the SPDR S&P 500 Trust that mimic its performance tend to do about the same.
I'm leaving my money alone for decades, because it's earmarked for my retirement, so I expect I'll earn something close to that 10% average annual return over time. This makes it easy for me to set my investing goals and have strong confidence I'll be able to achieve them.
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Key Data Points
No investing knowledge required
There's another reason why most of my money is in the SPDR S&P 500 Trust. I did not have to have any specialized investing knowledge to select it.
Basically, I knew years ago that I wanted to put my money into an ETF that tracked the performance of the S&P 500. I searched on Google and used my brokerage firm's fund screener, found the SPDR S&P 500 Trust within minutes, and was able to buy it.
I didn't have to pore over earnings reports or analyze company leadership or market position. I don't have to keep track of how any companies are doing. I don't have to think about it. I just auto-invest my money in my fund and wait for it to grow over time.
Now, I am giving up the potential to earn higher returns, which could come from making knowledgeable, informed choices to invest in shares of individual stocks. But I don't have enough time or interest to find those investments that could outperform the S&P -- especially when even professional fund managers often struggle to do that well.
Instant diversification
Since the S&P 500 includes companies across all different industries, my portfolio is basically diversified with this single investment.
The only other thing I need to do is put a little bit of money into bonds so I'm not overinvested in the stock market. Beyond that, I know I have a good mix of businesses I indirectly own through my ownership of the SPDR S&P 500 Trust.
Low fees
Finally, the SPDR S&P 500 Trust charges an expense ratio of 0.09%. That is an extremely low expense ratio, so I won't lose my returns as a result of high fees.
For all of these reasons, it just makes sense for me to be invested heavily in this S&P 500 ETF. If you're looking for an effortless investment that produces consistently great returns with minimal risk, your money may belong in it as well.
