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SPDR S&P 500 SPY ETF: What It Is & How It Works

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What Is the SPY ETF?

The SPDR S&P 500 ETF (NYSEARCA:SPY) is an exchange-traded fund that seeks to track the performance, before expenses, of the Standard & Poor’s 500 Index, also known as the S&P 500. The SPY ETF is one of the most popular S&P 500 index funds traded on the market today.

How Does the SPY ETF Work?

The SPDR ETF passively tracks the S&P 500 index, which represents roughly 500 of the largest U.S. publicly traded stocks, as measured by market capitalization. This provides SPY shareholders with a broadly diversified basket of large-cap U.S. stocks, spread across all 11 market sectors.

What Is the History of the SPY ETF?

The SPY ETF was launched on January 22, 1993, making it the very first exchange-traded fund listed in the United States. Since inception, the SPY ETF’s annualized return, through June 30, 2021, was 10.43%. This period includes three bear markets, three recessions, and the longest economic expansion in US history.

What Are the SPY ETF’s Top Holdings?

The SPY ETF’s top holdings, which are the same top holdings as the S&P 500 index, include the largest publicly traded U.S. stocks, as measured by market capitalization. The top sectors in the SPY ETF by allocation weight, as of June 30, 2021, are technology at 27%, healthcare at 13%, and consumer discretionary at 12%.

Here are the SPY ETF’s top 10 holdings:

  1. Apple Inc. (AAPL)
  2. Microsoft Corp. (MSFT)
  3. Amazon.com, Inc. (AMZN)
  4. Facebook, Inc. A (FB)
  5. Alphabet Inc. A (GOOGL)
  6. Alphabet Class C (GOOG)
  7. Berkshire Hathaway Inc. Class B (BRK.A)
  8. Tesla, Inc. (TSLA)
  9. NVIDIA Corp. (NVDA)
  10. JPMorgan Chase & Co. (JPM)

Important: ETFs and mutual funds that track an underlying stock index are described as passively-managed funds because the fund manager does not use discretion in selecting the securities. Instead, the manager holds the securities in the index. Many index funds are cap-weighted, which means that the larger the capitalization of the stock in the index, the greater the allocation percentage it receives in the fund.

How Do You Invest In the SPY ETF?

Investors can buy shares of the SPY ETF in the same way as buying stock. To invest in SPY, the first step is to open a trading account with a brokerage company, such as Charles Schwab, TD Ameritrade, or E*Trade. Once the account is open, the next step is to fund the account with cash. Now you’re ready to buy shares of SPY!

Who Are SPY ETF’s Competitors?

The main competitors for the SPY ETF are other large, low-cost, widely traded ETFs and mutual funds that track the S&P 500 index. Examples of SPY ETF’s competitors, in terms of assets under management, include iShares Core S&P 500 ETF (IVV), Vanguard 500 Index ETF (VOO), and the mutual fund Vanguard 500 Index (VFIAX).

Should You Invest In the SPY ETF?

Deciding whether or not you should invest in the SPY ETF will depend upon a few important factors, such as your tolerance for risk and your personal investment goals. Although the SPY ETF is considered to be a diversified investment, the fund consists of 100% stocks, which means that shareholders may see price fluctuations and may see declines in value (investment losses).

Warning: This article is for educational purposes and does not represent a recommendation to buy a security. Invested capital in the SPY ETF is not guaranteed and any investment losses can be suffered.

Frequently Asked Questions About the SPY ETF

Before buying shares of SPY, investors would be wise to learn its key characteristics, including performance history, expenses, and risk attributes.

Here are some of the most frequently asked questions about SPY:

What is the average return of the SPY ETF?

Through June 30, 2021, the 1-year return for SPY was 40.90%. For long-term reference, the 10-year annualized return for SPY was 14.71%.

What does SPDR stand for?

SPDR, pronounced “spider,” stands for Standard & Poor’s Depository Receipts. The SPDR ETF was the first ETF in the SPDR family of funds.

Is the SPY ETF safe?

Since the SPY ETF is a stock fund, it shares similar risk characteristics to any stock investment. This means that SPY shareholders must be willing to accept the risk of a decline in the principal risk of their investment. While long-term annualized returns have averaged greater than 10% for the SPY ETF, short-term declines can exceed 20%.

What is the SPY ETF expense ratio?

Expenses for SPY are 0.0945%.

What are the total assets for the SPY ETF?

SPY is the largest ETF in the world with assets totaling $380.9 billion, as of July 26, 2021.

What is the dividend yield for SPY?

As of June 30, 2021, the trailing twelve month (TTM) yield for SPY is 1.20%. The 30-day SEC yield is 1.23%. To see the latest dividend yield, see Seeking Alpha’s quote page for SPY.

When does SPY ETF pay dividends?

SPY pays dividends on a quarterly basis and payments have historically been in March, June, September, and December.

Note: For the latest fund statistics, see Seeking Alpha’s quote page for SPY. Be aware that past performance is no guarantee of future results.

Read More: SPDR S&P 500 SPY ETF: What It Is & How It Works

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