Last year, the markets were on top of the world; however, things have taken a bit of a turn so far this year. The Russian invasion of Ukraine, interest rate hikes and the possibility of a slowing economy are punishing growth stocks. Therefore, investors are on the lookout for safe performers. And despite the recent volatility, you cannot find a safer option than the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) stock.
The SPDR S&P 500 ETF Trust is a diversified index fund that provides portfolio exposure to the large-cap U.S. equities market, which is represented by the S&P 500 index. The S&P 500 is a stock market index that includes the 500 largest U.S. companies. It’s considered to be an accurate indicator of how the U.S. stock market is doing and is often used in financial analysis and portfolio management.
Additionally, the S&P 500 has been the most popular benchmark for long-term investments. In terms of total returns, it has historically outperformed other indexes, such as the Dow Jones Industrial Average or Nasdaq Composite.
Moreover, the SPDR S&P 500 ETF Trust exposes investors to large-cap US stocks, which are the largest and most liquid stocks on Wall Street and are considered less risky than other types of investments like bonds or real estate investments.
Overall, SPY stock is a great investment for investors of all ability levels looking for a buy-and-hold investment for their portfolio. Of course, there are some downsides to having this stock in your portfolio, and we will discuss them. But as a whole, SPY stock it’s a safe investment in the current environment.
When in Doubt, Invest in SPY Stock
As I mentioned earlier, the SPDR S&P 500 Trust is a mutual fund that tracks the performance of the S&P 500 Index. It is also one of the most popular and widely used exchange-traded funds (ETFs) globally.
In other words, SPY stock is a way for investors to invest in the stock market without owning the stocks. The trust consists of five index funds designed to mimic the performance of large-cap U.S. stocks and represent different sectors of the economy, including technology, financial services, consumer staples and more.
SPY’s returns closely tracked the S&P 500 ETF in the past decade, outperforming other large-blend funds and indexes. In fact, while it’s not the best, a regression analysis demonstrates that the fund generated an average annual return of 16.4% during the last decade. Many ETFs with strong performance history have been created since this trust’s inception in 1993. However, since the SPY has been around for a long time and has averaged a 10.64% return since launching, SPY stock deserves a lot of credit.
Does the SPY ETF Pay a Dividend?
Yes, SPDR S&P 500 Trust pays a dividend. The fund collects all of the payouts from the dividend-paying stocks out there. Subsequently, it distributes the dividends to shareholders. The yield is a very respectable 1.30%. If you invest $10,000 in SPY stock, you make $130 a year, paid quarterly.
There is also great capital appreciation. At the height of the financial crisis, shares were changing hands for $67.95. Now, SPY stock trades for a cool $461.55 per share. Yes, you can not compare that with some of the major growth stocks. However, given the sheer size of the SPY, small gains don’t make a dent in its overall performance. Plus, small fluctuations in stocks that are only just 0.5% of the total index can be easily ignored. So, therefore, you cannot expect major fluctuations with this one; the recent activity is an outlier.
Do You Want to Own SPY Stock?
Now, if you are on the fence about buying SPY stock, here’s the main point: it depends on your investing profile. For example: if you’re concerned about market fluctuations over the long term, it’s still a good idea to invest in SPY. Even though it is not very liquid, it provides stability since it is so diversified and doesn’t take too much of your time to manage. This fund tracks the largest U.S. stocks, and it’s worth checking out because of its low fee.
That said, you should know the cons of investing in the ETF, too. When you own this ETF, you get the duds as well. The evidence suggests SPY outperforms in large-cap growth. However, you’ll also have to accept that you own the laggards of the index.
On the other hand, you have some ETFs that charge less. A prime example is the SPDR Portfolio S&P 500 ETF (NYSEARCA:SPLG). This fund’s expense ratio sits at just 0.03%, which is also the expense ratio of the Vanguard S&P 500 ETF (NYSEARCA:VOO).
Plus, if you’re looking for a low-risk investment and prefer taking a risk on stocks with an element of higher growth potential, an ETF with stocks focused on growth companies will be perfect. In that case, though, SPY will not entice you much.
The Bottom Line on SPY Stock
The financial markets are in a state of constant fluctuation. But, during these times of volatility, ETFs can provide a great low-risk investment solution. It is important to determine which ETFs are most suited for your investment goals and risk tolerance. SPY can protect against fluctuations within the sector itself with its history of stability and steady performance.
If you are a risk-averse investor, few are better than this option. So, to summarize, SPY stock is a reliable, low-risk “set it and forget it” investment that investors should consider moving forward.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.