Given the recent decline in the three major stock market indexes, it may not appear to be the most opportune moment to engage in stock investments. There is a natural inclination to purchase assets that are on an upward trend, as we can easily envision potential returns if the momentum persists. The typical approach is to join the trend and promptly witness your investment flourish. However, as counterintuitive as it may seem, one of the most effective strategies for successful investing is to consider purchasing during periods of uncertainty. Why? Because high-quality stocks and assets could be available at discounted prices, allowing you to acquire them for a bargain and reap the benefits once they recover and grow over time.
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It is crucial to bear in mind that market challenges, whether stemming from governmental policies, escalating inflation, or economic downturns, are typically not permanent. Present concerns among investors revolve around the impact of President Donald Trump’s tariffs on imports from countries like China, Canada, and Mexico on the economy and corporate profits. While this may present obstacles, resilient companies can navigate through these difficulties and emerge successful. In light of this, could investing in the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) – which tracks the S&P 500 index – be the wisest choice at present? Let’s delve into this further.
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Understanding ETFs
Before delving into the specifics of this investment, it’s essential to familiarize ourselves with the concept. An exchange-traded fund (ETF) encompasses a variety of stocks based on a specific theme, such as retail or biotech, or in accordance with a company’s inclusion in a particular index – the latter being the case with the fund under discussion. Similar to stocks, ETFs are traded daily in the market. Hence, if you’re accustomed to purchasing stocks, acquiring an ETF follows a similar process. It is important to note that ETFs come with a management fee, indicated as an expense ratio. To safeguard your gains over time, opt for an ETF with an expense ratio below 1%. With a ratio of 0.09%, the SPDR S&P 500 ETF largely meets this criterion.
With this understanding in place, let’s evaluate whether investing in this specific ETF is a prudent decision for you. The SPDR S&P 500 ETF mirrors the performance of the S&P 500 index, making it a direct play on the overall stock market. This index comprises top companies that drive today’s economy and undergoes periodic adjustments to maintain its relevance. Consequently, by investing in this ETF, you gain exposure to the current industry leaders.
Recent Performance of the S&P 500
During market downturns, it’s probable that this ETF will experience a decline – as it
The price of the SPDR S&P 500 ETF Trust, which closely tracks the S&P 500 index, has recently dropped. However, what’s more significant is that this investment provides exposure to an index that has shown resilience consistently throughout its history. Following every period of decline, the index has rebounded and experienced growth over time. Since its inception as a 500-company index in the late 1950s, the S&P 500 has delivered an average annual return of over 10%. It’s challenging to predict the market’s exact bottom to purchase a stock or an ETF. Still, the S&P 500’s track record gives us confidence in potential returns over time, regardless of when we invest. This is why the SPDR S&P 500 ETF Trust is an attractive investment opportunity even if the S&P 500 continues to decline in the short term. Don’t miss out on this chance for a potentially profitable opportunity.
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*Returns based on Stock Advisor data as of March 3, 2025. Adria Cimino does not hold positions in any of the stocks mentioned. The Motley Fool endorses and holds positions in AbbVie. The Motley Fool abides by a strict disclosure policy.
