Co-founder of Affari Miei
January 26, 2024
Today I’ll talk to you again about ETF on stock indices and I do it with the S&P 500 ETFa passively managed stock that seeks to replicate, as precisely as possible, the performance of one of the stock market indices most important worldwide.
If you don’t already know me, I want to welcome you to My business, the #1 personal finance blog in Italy. I often talk about ETFs because I believe they are the best tools for investing independently and, also for this reason, I created a section of the blog entirely dedicated to the topic.
In today’s guide I will try to guide you in discovering this title, one of the most interesting for those who want to include it in their portfolio Stock ETFs.
Are there advantages and disadvantages related to this specific title? Which ones are the most convenient? Are there risks associated with this specific operation?
Let’s see it together in the guide I have prepared for you.
This article talks about:
Why the S&P500 index
Today’s topic is one of the most interesting for those looking at the stock ETF market. The underlying of the stock I am analyzing today is in fact the S&P 500 indexone of the most important in the world.
In fact, it is the index that collects, weighted by market value, all 500 of the main companies in the United States of America that are listed on the stock exchange.
The index is so important that it has now supplanted all other indices on the New York Stock Exchange, at least as regards the completeness of the index and its ability to replicate the performance of the American economy.
It is an index that was introduced in 1982 and which today is the most important tool for analysts and investors to have as complete a picture as possible of the performance of the American economy.
Anyone who bets on an S&P 500 ETF is betting on the general trend of the US economy, at least at the stock level and therefore finds himself in possession of a security that is highly differentiatedalthough presenting, as we will see later, the typical risks of ETFs that are based on stock indices.
The US economy continues to be the most important in the world and often still manages to perform better than economies that would seem, at least on paper, to have more driving force.
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The most important factors for choosing a good S&P 500 ETF stock
Since it is a widely followed index in the financial markets, there are many ETFs that use the S&P 500 index as their underlying.
Here you have no problems, you are truly spoiled for choice if you are looking for an ETF to invest in.
Moving through this jungle is not always easy, because although the reference index is the same, you will necessarily have to deal with securities that are different due to some fundamental characteristics:
Liquid assets: the higher it is, the better quality the ETF is. This is because, with the same replication, having a security that is easy to sell means being able to have greater liquidity, as a consequence, in the portfolio. Buying an S&P 500 ETF with a small capitalization and little liquid may mean having to necessarily wait to sell at an acceptable price;
He takes: there are ETFs that incorporate a certain leverage; Since it is a stock index and therefore already sufficiently volatile, my advice is to avoid choosing a stock that has associated financial leverage.
Exchange rate risk: these are securities listed in dollars
Although EUR/USD is one of the most stable pairs in the currency landscape, if you decide to invest in the stock I’m talking to you about today you will necessarily have to take the exchange rate risk into account.
A loss in value of the US dollar against the Euro will correspond to a loss of your security. On the contrary, if the dollar were to appreciate against the Euro, you would find yourself with a security in your portfolio that is worth more.
Exchange rate risk can be reduced or eliminated, these are complex issues that I address in my advanced programs, here you are interested in knowing that it exists in any case.
What are the best S&P 500 ETFs?
Taking into account the criteria I listed above, I have chosen some of the best S&P 500 ETFs for you: one is accumulating and the other is distributing.
As I underline on several occasions, this article is also for informational purposes only: I am not telling you to buy these ETFs nor am I providing you with individual advice because I don’t know your starting situation and, above all, I don’t know what your strategy is.
Without a strategy, talking about financial instruments is like drawing lottery numbers.
iShares Core S&P UCITS ETF
It is the best capitalized S&P 500 ETF in the world. It is incorporated under Irish law and has a capitalization of 66,431 million euros.
It has total replication, is listed in US dollars and has been active since 2010.
As for the coststhese are extremely low: we are in fact talking about a 0.07% total management cost on an annual basis, costs that are decidedly low even compared to what is offered by other ETFs of this type.
The distribution policy for dividends is ad accumulationmeaning the coupons are reinvested in the fund itself to harness the power of compound interest.
Vanguard S&P 500 UCITS ETF
This is another well-capitalised ETF, 21,155 million euros for decidedly interesting liquidity. Same commissions as the other ETF I recommended, i.e. 0.07% on an annual basis.
It is listed in USD and has been active since 2012. It pays dividends every 3 months.
It is worth remembering that, even in this case, you do not have a security available that allows you to protect yourself from exchange rate risk.
My Opinions on ETFs that track the S&P500 index
American stocks represent an essential part of any investment portfolio with a minimum appetite for risk.
If you want to know how I invest, obviously I have to have an ETF on this index.
However, I believe a “yes” or a “no” could be reductive because there are no instruments that are good or bad regardless because any investment must be included within a strategy.
If you are interested in learning more, here you can find mine.
Are they risky?
They are risky like all ETFs that have a stock index as a reference. These are securities that typically have a synthetic risk index ranging from 5 to 7, on a maximum scale of 7 and are therefore certainly not suitable for those who want to invest in safe securities.
You will have to expect the so-called “roller coasters”: the stock will lose and gain value very quickly and you will have to try to think, as far as possible, in the medium and long term.
If you are not ready for volatility, therefore, this ETF is not for you.
How to Buy an S&P500 ETF
You can do this in two ways: through your bank or a licensed broker.
Here you will find some of the best platforms for investing online.
If you have never done it, I recommend caution because investing in the stock market is not an activity that can be improvised. By continuing to read the blog you will find lots of content to continue your educational journey.
Conclusions
Together we took a brief look at the ETF that replicate the index S&P 500: I hope that this article has helped you, even before making decisions, to understand that the choice of strategy comes before identifying the title.
If you want to start getting familiar with ETFs, I recommend you download this report.
For further information I recommend the following resources:
Happy continuation!
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