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What is S&P 500 Index?
The S&P 500 Index, or the Standard & Poor's 500 Index, is a market-capitalization-weighted index of the 500 largest publicly-traded companies in the U.S. It is not an exact list of the top 500 U.S. companies by market capitalization because there are other criteria to be included in the index. The index is widely regarded as the best gauge of large-cap U.S. equities. Other common U.S. stock market benchmarks include the Dow Jones Industrial Average, or Dow 30, and the Russell 2000 Index, which represents the small-cap index.
The S&P does not currently provide the total list of all 500 companies on its website, outside of the top 10. Many of the top companies in the S&P 500 include technology firms and financial businesses.
Source: Investopedia
What is S&P 500 ETF?
S&P 500 ETF is an exchange-traded funds that tracks S&P 500 Index.
Some of the popular ETFs are Vanguard S&P 500 ETF (VOO) , iShares Core S&P 500 ETF (IVV) and SPDR S&P 500 ETF Trust (SPY)
Why invest in S&P 500 ETF?
"The S&P 500 is one of the best long-term investments out there, and famed investor Warren Buffet has long touted the S&P 500 as an ideal option." - Source: The Motley Fool
Personally I'm investing in S&P 500 ETF and trying invest consistently every month if possible (Dollar Cost Averaging) to invest in long term (10-30 yrs). If you are looking to have very high returns in short term, maybe the S&P 500 ETF is not suitable for you.
Reasons that I'm investing S&P 500 ETF
- The S&P 500 ETF tracks closely to S&P 500 Index which I strongly believe S&P 500 index will have positive-growth in long term though it will have ups and downs in short terms.
- The S&P 500 ETF is well diversify which is an inexpensive way to gain diversified exposure to the U.S. stock market.
- I can invest in stocks such as Apple (AAPL), Facebook (FB), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG) and Tesla (TSLA) at the same time.
If you invest US$2,000 per month in SPDR S&P 500 (SPY).
"With a four-star Morningstar rating, SPY's returns have beat the average return of other large blend funds in the past decade. The SPDR S&P 500 ETF Trust (SPY) has generated an average three-year return of 13.25% through December 2020. Based on trailing 10-year data, the fund generated average annual returns of 13.55%. Since the inception of the SPDR S&P 500 ETF Trust, the fund achieved average annual returns of 9.96%." - Source: Investopedia
For illustration purpose: If we invest US$2,000.00 per month for 20 years in SPDR S&P 500 ETF Trust (SPY) and use 9.96% as annual returns in compound interest calculator, we will have about US$1.5 million.
We have to invest our money in order to build our wealth, but we have to invest within our means and with the extra money that we can put aside for long term (more than 10 - 30 years) and will not be emotionally or financially affected by the ups and downs of the S&P 500 ETF.
Let’s build our wealth together.