The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is down 12.20% year-to-date through March 14. As every day passes and March turns to April and then May, unless SPY stock gets some positive catalyst, it looks headed for its first year in the red since its -4.56% total return in 2018.
If you maintain a monthly dollar-cost averaging plan, the ETFs current woes are an opportunity to get some exposure to the S&P 500 at a deep discount. SPY hasn’t traded this low since June 2021.
In the significant correction of March 2020, SPY lost 32% of its value in a month, so things can always get worse. That said, history has shown us that it always bounces back whenever the index gets knocked down.
Now would be an excellent time to implement a monthly contribution plan if you have the cash to invest. From everything I’ve seen or read, the winning streak for the SPY is about to end at three.
Here’s why.
SPY Stock Headed Lower Still
InvestorPlace’s Nicolas Chahine recently discussed why the current global uncertainty caused by the Russian invasion of Ukraine has investors in no mood to play games with their capital.
“So far, the sellers are in control because they have unusual tailwinds helping them. At the forefront is the situation in the Ukraine. Even though politicians are sporadically saying the right things, there hasn’t been follow through. The matter is escalating and getting more complicated. Therefore, the situation is volatile and it could take a turn for the worse quickly,” Chahine wrote on March 14.
This past weekend a Russian missile attack on a Ukrainian military base near the Polish border killed 35 people and wounded another 134. U.S. Secretary of State Anthony Blinken condemned the attack suggesting “[t]he brutality must stop.”
I don’t think there’s any question; another close call by the Russians near a NATO country will up the chances of the conflict spilling into Europe. That would be devastating for most stocks, not just the constituents from the index.
InvestorPlace contributor Chris Lau suggested seven defense stocks to buy to hedge against the market instability caused by the Russian/Ukraine conflict. Some of the names include Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC), and Raytheon Technologies (NYSE:RTX).
I don’t necessarily disagree with my colleague. Defense stocks generally benefit in times of war. However, when the world’s staring down the barrel of a potentially lethal battle between NATO and Russia, I’m not sure investors will have the appetite for buying many stocks, regardless of the benefits that accrue to them.
If things get hotter than they already are, the world’s imminent demise will see people hugging their loved ones rather than thinking about the next big investment score. At least the rational ones, anyway.
If the conflict isn’t resolved soon, I could see SPY falling below $400. That would be a big deal. SPY’s been on a one-way train higher since hitting its March 2020 low, around $228.
The Monthly Contribution Plan
Just last night, while my wife and I were having dinner at our favorite cider house in Halifax, one of the staff who’s into stocks started a conversation about the current volatility. He’d tried a couple of moves that got crushed. So now he’s keeping his cash on the sideline.
My advice to him was to buy equal amounts of SPY over the next few weeks and months until the war is resolved and the markets return to relatively normal conditions.
My rationale was simple.
The S&P 500 trends higher over the long run. In the past 20 years, the index was up in 17 of those years. This assumes a down year in 2022. Since 1974, the index has had 10 down years, averaging -13.83%, with 39 years in positive territory.
Go back to 1926, and it gets a little less optimistic. In the 48 years from 1926 through 1973, the markets were down on 17 occasions, averaging -12.05%.
So, out of 97 years, the index finished in positive territory 72% of the time. That’s a pretty good track record if you ask me.
Unless you’re a super-aggressive investor, I don’t know why you would do anything other than commit to a regular contribution to SPY or some other S&P 500 ETF or mutual fund. The odds of success over 10 or more years are heavily stacked in your favor.
If you can commit $100 a month, break it down into four weekly purchases of $25, making sure to buy on a down day. Then, keep doing that until an upward trend develops — say two or three consecutive weekly gains — and then return to whatever you were doing before the war started.
The Bottom Line
Here at InvestorPlace, we cover a lot of stocks that probably shouldn’t be on the average investor’s buy list. Just because we’re recommending risky stocks doesn’t mean you have to follow through on these recommendations. Sometimes, discretion is the better part of valor.
SPY is the play in these markets. So don’t bother with anything else. A year from now, you’ll be glad you kept it simple.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
