Many investors don’t have the time or inclination to invest in individual stocks. The amount of research required to track a diversified portfolio of 25 or more stocks is considerable, and even with cutting-edge investing tools to help you, staying up to date on the latest news in every company you own stock can be a challenge.
That’s why many investors turn to alternatives to individual stocks for investing. In particular, exchange-traded funds provide the broad stock exposure investors want, with many holding shares of hundreds or even thousands of different companies. However, since they trade on major stock exchanges just like individual stocks, you don’t need to have a separate account or worry about other investing processes.
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The simple way for investors to diversify their investments through a single instrument has made ETFs a must-have investment for millions of investors. No matter which ETFs you hold in your portfolio, they owe it to the ETFs that blazed the trail for all the others that came after. this is SPDR S&P 500 ETF Trust ETF (NYSE: SPY)The original ETF helped countless investors get rich while still leaving a deep impression on the industry. ETF Overview for March voyager combinationour first focus is on the SPDR S&P 500. This is the first in a series of articles that will focus on the ETF’s beginnings and how investors gained confidence in the fund.
To understand how the SPDR S&P 500 got started in 1993, you need to go back about five years. After the stock market crash of October 1987, many economists and policymakers tried to identify the root causes of the stock market crash and factors that might help prevent the collapse. A product development expert at the American Stock Exchange has written a report arguing that having a financial institution that specializes in trading baskets of stocks that correspond to popular stock market indexes might be enough to prevent the program trading algorithms that caused the severe crash of 1987 from causing such large losses.
The idea took off, and over the next few years several Amex colleagues, as well as a law firm, a trading expert and state street (NYSE: STT) All this has come together with financial market regulators to flesh out what this investment vehicle looks like. Ultimately, what differentiates ETFs from other investments is their ability to create or redeem tranches of shares through the physical transfer of the underlying shares.
The 1990s saw a strong bull market, but eventually the SPDR S&P 500 ETF was tested. The tech stock bubble burst from 2000 to 2002 marked the first time that exchange-traded funds experienced a prolonged bear market. Of course, the 2008 financial crisis proved to be a critical test for the entire financial system, including the viability of ETFs. Yet each time, these funds not only survived but thrived, becoming increasingly popular with investors.
But interestingly, the SPDR S&P 500 Index has an expiration date. The entity is set up as a unit investment trust and will technically terminate in 2118, 20 years after the death of the last of the 11 individuals named when the trust was created.
The SPDR S&P 500 ETF may be the first ETF to trade on a U.S. stock exchange, but that leaves a more important question unanswered: How will it perform for shareholders? The next article in this series looks at the original ETF voyager combination Will be watching SPDR S&P 500 returns more closely.
Before purchasing SPDR S&P 500 ETF Trust shares, consider the following factors:
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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
This ETF has posted huge returns for 33 years — and is just on track Originally published by The Motley Fool