The SPDR S&P 500 (NYSE: SPY) is an exchange-traded fund (ETF), designed for tracking the S&P 500 stock market
index. SPDR S&P 500 is an acronym for the Standard & Poor's Depositary
Receipts – Standard & Poor's
500 Index, which consists of 500 stocks selected by economists and considered
as leading measure of U.S equities. The S&P 500 is a preferred index for
U.S stocks, because of its market cap methodology that weighs larger companies
as more important, rather than the traditional price weighting methodology that
weighs more expensive stocks as more important. In other words, your portfolio
will consists of 500 leading companies stocks with as tiny the amount of investment
as you want it to be. Should it looks interesting to you to acquire SPY stocks,
the process is as easy as logging in your online brokerage account and search
for it, or calling your broker and ask for it.
How good can this SPY
stock be? Historical data from Yahoo! Finance shows that from January 29, 1993
to December 31, 2016 SPY has an average monthly return of 0.814% and standard
deviation of 4.16%. It implies that in the long run you should make profit of
0.814% a month with this stock, however the chance of running into a loss is
also likely to happen. 95% of SPY’s expected monthly return ranges from -7.34%
to 8.97%, so you have a fairly higher chance of making money rather than losing
money. For better understanding, I shall construct a Monte Carlo simulation in SPY.
Assuming $500 is
invested in SPY every month for 30 years. The total amount invested is
$180,000. The return rate is randomly chosen from the range, and then an ending
balance is calculated. Repeating the process for 100 times, and here is the
result: on average the ending balance is $1,160,121.25 with a 95% chance it
ranges from $(216,845.09) to $2,537,087.59. That means you are likely to get a
return worth 6 times your investment, and you are likely to be a millionaire
after 30 years just by investing in SPY. My reccomendation is to buy SPY, keep
it and invest more in it as much as you can. Not only this is a safe choice
with low risk, it also promises high return that not many investments can
compare to.
