A simple way to own a piece of America’s top 500 companies, all at once.
If you’ve ever wondered how to invest in the stock market without getting overwhelmed, meet SPY, which is short for SPDR S&P 500 ETF.
SPY is one of the most popular and powerful index funds in the world. It is basically a shortcut to owning the entire S&P 500, an index that includes 500 of the biggest, most successful companies in the U.S.
We’re talking about the likes of Apple, Microsoft, Amazon, Google, Coca-Cola, and hundreds more.
If You Are Confused About What ETFs Are
An ETF (Exchange-Traded Fund) is like a bundle of stocks you can buy in one go. Instead of picking individual companies, you get access to all of them by investing in just one fund.
SPY is an ETF that tracks the S&P 500, so when the S&P 500 goes up, SPY goes up too.
SPY Isn’t Just Any ETF, It Is the OG
It launched in 1993, and it now manages a mind-blowing $644.5 billion in assets. In fact, it’s the first ETF in history to cross the $600 billion mark.
But what makes SPY so appealing for beginner investors?
SPY Is One of the Best Index Funds for Beginners
You own the top 500 U.S. companies. With one investment, you’re buying into giants across tech, healthcare, energy, and more.
There are also low fees that come with high value. SPY’s expense ratio is just 0.0945%, which means you pay only $94.50 in annual fees for every $100,000 invested. Super affordable for what you’re getting.
It is pretty easy to buy and sell. SPY trades like a regular stock and has insanely high trading volume, with over 43 million shares daily. This means you can buy or sell with just a few clicks and tight price spreads.
The dividends come in steadily. SPY pays quarterly dividends sourced from the companies it holds. The current dividend yield is 1.2%, which adds up over time, especially if you reinvest. Fun fact: SPY has paid dividends consistently for over 30 years.
You can lend out your SPY shares (kind of like renting them to other investors) and earn a little side income. In 2023 alone, SPY generated way more in lending revenue than other ETFs like IVV and VOO.
Once you’re more experienced, SPY’s liquid options market lets you use strategies like covered calls to generate even more income.
Unlike some funds, SPY can be traded in extended hours, which is useful if you want to react to news after markets close.
SPY Has a Small Downside
It doesn’t automatically reinvest your dividends. That means your payouts sit in cash until you manually reinvest or withdraw them.
Reinvesting is important because reinvesting dividends equals more compounding, bigger returns over time.
For example, if you invested $100K in 1990 and reinvested dividends, you’d have over $2.1 million by 2022. Without reinvesting? Just $1.1 million. Ouch.
How to Start Investing in SPY (Step-by-Step)
Getting started is easier than you think.
Step 1: Choose an Investment Platform
Pick a broker or app that gives you access to U.S. markets. Some popular ones include Robinhood, Fidelity, Charles Schwab, Vanguard, and Interactive Brokers (great for international investors).
If you are an African investor, look into apps like Chaka, Trove, or Bamboo, which offer access to U.S. stocks and ETFs.
Step 2: Fund Your Account
Transfer money into your brokerage account. You can start with as little as $100 or less.
Step 3: Search for “SPY”
That’s the ticker symbol. Type it in, see the SPDR S&P 500 ETF pop up, and click “Buy.”
Step 4: Decide How Much to Invest
You don’t need to buy a whole share, many brokers allow fractional shares, so even $20 is enough to get started.
Step 5: Hit “Buy” and Relax
You’re now officially investing in 500 companies in one swoop.
