Key Points
Many investors think that you can’t be successful without complicated investment strategies.
However, a simple approach using just one exchange-traded fund has had great success.
There’s a reason why this ETF is among the largest in the industry.
- 10 stocks we like better than SPDR S&P 500 ETF Trust ›
You've heard a lot about how stocks can help make you rich. But what if you don't have the time to spend digging through hundreds or even thousands of different companies looking for the ones that will make you the most money? Those investors also need a way to put their money to work that will maximize their returns without dominating all their free time.
For many, exchange-traded funds have been the answer. The majority of ETFs follow a passive investing approach that requires very little work from their shareholders. Simply by buying shares of an ETF, you can build a diversified portfolio of stock investments with very little starting capital.
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This month, the Voyager Portfolio is looking at ETFs, and yesterday's opening article introduced readers to the SPDR S&P 500 ETF Trust ETF (NYSEMKT: SPY). The SPDR S&P 500 ETF was the first exchange-traded fund to trade on U.S. exchanges, and since 1993, it has become one of the most popular ETFs in the marketplace. Below, you'll learn more about exactly what the SPDR S&P 500 ETF has done for its shareholders and what it could do for you too.
Image source: Getty Images.
Forget about beating the market. Matching it is good enough
Investors who pick individual stocks to buy do so because they believe they have an edge. Their expectation is that they'll be able to beat the overall market, ideally by finding a few high-flying companies that are at the forefront of some innovative trend that will carry them to huge success.
Obviously, being able to find stocks that rise by 20, 50, or even 100 times their original value would be a clear ticket to life-changing wealth. And if you could be guaranteed of finding one of those 100-baggers, it would justify dozens of stock investments with less favorable outcomes and still give you a strong overall return.
But it might surprise you to learn that even matching the market was enough to produce substantial wealth. The SPDR S&P 500 ETF is a testament to that philosophy, because its investment philosophy simply involves buying every single stock in the S&P 500 index in the correct proportion, and then holding onto all of those stocks as long as there aren't any changes in the index. Since the fund's start in 1993, SPDR S&P 500 ETF has generated average annual returns of 10.7%. When you do the math, what that says is that anyone who invested $1,000 in the ETF when it first started would have over $28,600 today -- without ever having added a single penny more. And those who did invest regularly have seen even greater gains in their portfolios, benefiting particularly from periods of time when the markets fell and the stocks they held became relatively inexpensive.
Investors have piled in
As it turns out, the passive investing approach that the SPDR S&P 500 ETF has adopted has been hugely popular among investors. Starting from modest beginnings, the ETF became the first in history to reach $500 billion in assets under management, which occurred two years ago in early 2024. Currently, assets have climbed to over $700 billion, putting it among the three largest ETFs in the entire investing universe.
SPDR S&P 500 is useful in many ways. For individual investors, it provides quick diversification. For institutional investors, it gives those who are required to have maximum exposure to the stock market a way of staying fully invested without having dedicate all of their money to individual stock picks. And for those following diversified asset allocation strategies, it can be one of a handful of ETFs across several asset classes to provide a balanced portfolio.
Given the success of the SPDR S&P 500 ETF, though, it's reasonable to ask whether its competitive edge might get disrupted. The third and final article on the SPDR S&P 500 ETF for the Voyager Portfolio will examine this concern in more depth.
Should you buy stock in SPDR S&P 500 ETF Trust right now?
Before you buy stock in SPDR S&P 500 ETF Trust, consider this:
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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
