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Welcome to Episode #399 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds, and ETFs and how it impacts your life.
This week, Tracey is joined by Neena Mishra, Zacks Director of ETF Research and the editor of the ETF Investor newsletter and portfolio, to discuss the basics about buying an S&P 500 ETF. These are the ETFs which track the performance of the S&P 500 index.
Buying the indexes has become a popular way to invest for many, with it even being endorsed by the greatest living investor, Warren Buffett.
But which S&P 500 ETF do you buy?
Tracey and Neena cut through all the noise to bring you the basics.
Expense Ratios Matter
One of the biggest contributing factors as to which S&P 500 ETF you will buy is the expense ratio. You may not think it matters whether an ETF charges you 0.09% or 0.02%, but over 20 or 30 years, those little amounts really add up and can hit your performance.
The lower the expense ratio, the better. And thankfully, ETF providers have been in a competition to find out which provider could provide the cheapest index ETFs so the expense ratios keep going lower.
The SPDR S&P 500 ETF is the oldest of the S&P 500 index ETFs and it’s the largest, in terms of assets.
But SPY is also the most expensive. It has an expense ratio of 0.095%. Because of its liquidity, SPY has been favored by traders, and less by investors.
If you are a long-term investor, you should consider investing in one of the cheaper indexes.
The SPDR Portfolio S&P 500 ETF is a newer ETF with just a few years on the market. State Street saw that it’s flagship SPY was losing some steam with long term investors who wanted a lower expense ratio, so it created SPLG.
SPLG tracks the same index as the others but it has an even lower expense ratio of just 0.02%. If you are a long-term investor looking for the cheapest way to buy and hold the S&P 500, then SPLG should be on your short list.
Because all three are tracking the same S&P 500 index, they all own the same top 10 stocks. Microsoft is the largest holding in the market cap S&P 500 index. Microsoft is 7.09% of the index.
Microsoft has been on a tear, rising 42.6% in the last year. The S&P 500, meanwhile, has gained 22.7% during that time.
If you own the S&P 500, you will own a position in Microsoft.
Image: Shutterstock
What is the Best S&P 500 ETF to Buy?
Welcome to Episode #399 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds, and ETFs and how it impacts your life.
This week, Tracey is joined by Neena Mishra, Zacks Director of ETF Research and the editor of the ETF Investor newsletter and portfolio, to discuss the basics about buying an S&P 500 ETF. These are the ETFs which track the performance of the S&P 500 index.
Buying the indexes has become a popular way to invest for many, with it even being endorsed by the greatest living investor, Warren Buffett.
But which S&P 500 ETF do you buy?
Tracey and Neena cut through all the noise to bring you the basics.
Expense Ratios Matter
One of the biggest contributing factors as to which S&P 500 ETF you will buy is the expense ratio. You may not think it matters whether an ETF charges you 0.09% or 0.02%, but over 20 or 30 years, those little amounts really add up and can hit your performance.
The lower the expense ratio, the better. And thankfully, ETF providers have been in a competition to find out which provider could provide the cheapest index ETFs so the expense ratios keep going lower.
The 3 Largest S&P 500 ETFs
1. SPDR S&P 500 ETF (SPY - Free Report)
The SPDR S&P 500 ETF is the oldest of the S&P 500 index ETFs and it’s the largest, in terms of assets.
But SPY is also the most expensive. It has an expense ratio of 0.095%. Because of its liquidity, SPY has been favored by traders, and less by investors.
If you are a long-term investor, you should consider investing in one of the cheaper indexes.
2. Vanguard S&P 500 ETF (VOO - Free Report)
The Vanguard S&P 500 ETF is so popular with investors that most just refer to it by its ticker: the VOO.
For years, VOO was the cheapest of the big S&P 500 ETFs. It has an expense ratio of just 0.03%.
The VOO is often offered in many 401ks and many investors buy it for their own IRA accounts.
But VOO no longer the “cheapest” of the ETFs. Should you still buy it?
3. SPDR Portfolio S&P 500 ETF (SPLG - Free Report)
The SPDR Portfolio S&P 500 ETF is a newer ETF with just a few years on the market. State Street saw that it’s flagship SPY was losing some steam with long term investors who wanted a lower expense ratio, so it created SPLG.
SPLG tracks the same index as the others but it has an even lower expense ratio of just 0.02%. If you are a long-term investor looking for the cheapest way to buy and hold the S&P 500, then SPLG should be on your short list.
All 3 ETFs Hold the Same Top Stocks
1. Microsoft Corp. (MSFT - Free Report)
Because all three are tracking the same S&P 500 index, they all own the same top 10 stocks. Microsoft is the largest holding in the market cap S&P 500 index. Microsoft is 7.09% of the index.
Microsoft has been on a tear, rising 42.6% in the last year. The S&P 500, meanwhile, has gained 22.7% during that time.
If you own the S&P 500, you will own a position in Microsoft.
2. Apple Inc. (AAPL - Free Report)
Apple is the second largest position in the S&P 500, at 5.64%. But instead of being a boost to the index this year, it has held it back.
Apple shares are up only 1.1% over the last year, underperforming the S&P 500 index, which has gained 22.7% during that time.
This underperformance is why investors like to own indexes. They get a bucket of stocks that can help smooth out rough times in a single position.
Many investors like owning the S&P 500 index because of this big concentration in Apple.
What Else Should You Know About the Best S&P 500 ETFs?
Tune into this week’s video podcast to find out.