Stock picking isn’t easy. One way to avoid single-stock risk is to buy and hold the famous SPDR S&P 500 ETF Trust (NYSEARCA:SPY). With SPY stock, you’ll own a set-it-and-forget-it asset with history and pedigree.
Back in the old days, investors would often buy a basket of stocks through a mutual fund. But sometimes the fees for those are hefty, and you might not be able to buy and sell them whenever you feel like it.
Everything changed, however, in January of 1993 with the introduction of the very first exchange-traded fund (ETF). Trading under the ticker SPY, it tracks the well-known S&P 500 market index.
The fund still performs this function today, and does it quite well. As we’ll see, the SPY ETF has been good to its loyal investors over the long run — though admittedly, it requires a certain mindset to ride out the bumps sometimes.
The Lowdown on SPY Stock
First things first: income seekers will like SPY stock, as the fund pays a consistent dividend every three months. While the S&P 500’s annual dividend yield is 1.45%, the fund distributes a yield of 1.34%, which is pretty close.
Second, if you hate high fees (like you might have with mutual funds), you’re in luck. Believe it or not, the SPY ETF’s total expense ratio is just 0.0945%. We’re talking about less than one-tenth of one percent.
Also, like I alluded to earlier, SPY stock has a longer history than any other ETF. It’s an old stand-by that has one job and does it well. It tracks and follows the path of the S&P 500, plain and simple.
Don’t misunderstand — the fund’s managers don’t decide what’s in the S&P 500. They just manage the ETF and ensure it performs like the index it’s supposed to track.
Wrecked by Tech?
Here’s what might scare some people away from SPY stock, though: The fund, which is weighted heavily towards bigger companies (as measured by their market capitalizations), is dominated by technology stocks.
In order, its top five holdings are Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) Class A and Class C shares.
Not only that, but Meta Platforms (NASDAQ:FB) (which you probably know as Facebook) and tech-component maker Nvidia (NASDAQ:NVDA) are in the fund’s top 10 holdings.
Again, we should emphasize this technology-heavy weighting isn’t decided by the fund’s managers. It’s just a current feature of the S&P 500.
Due to a number of recent factors, technology stocks haven’t performed well over the past four months. You might wonder: what exactly is going on here?
Just Relax and Stay Invested
The contributing factors to the so-called “tech wreck” include the market’s fear that the Federal Reserve will raise government bond yields and global shortages of essential technology components.
Before you panic and sell your SPY stock or just avoid it altogether, though, consider this. Successful investors like Warren Buffett don’t worry when a crisis happens in tech stocks.
Buffett doesn’t just dump his Apple shares when Wall Street rotates out of technology stocks. Instead, he rides out the bumps and sometimes even adds to his stock holdings.
When SPY stock bottomed out at around $223 in March of 2020 — and the fund was tech-heavy then, as well — it was the time to buy, not the time to sell. Then, all you had to do was sit, relax and wait. A few months ago, the fund’s price reached an all-time high of $479.98.
The Bottom Line on SPY Stock
Sure, SPY stock is heavy on the technology names. That’s what can happen when tech businesses grow quickly in a digitized economy. When Wall Street rotates out of technology stocks, the SPY ETF will likely decline for a while. The best response isn’t to panic-sell.
Instead, investors can just chill out, hold their shares and collect the dividends. History shows you can hold SPY stock long-term with confidence — no need to fear when the world’s first and finest ETF is here.
On the date of publication, David Moadel 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.
