Over the past few weeks, the three major indexes have experienced declines, leading many to wonder if now is the right time for stock investments. It’s natural to be drawn to a stock when it’s climbing, as it’s easy to envision the fantasies of hefty returns if that upward streak continues. We often want to jump in just as the party starts, hoping to ride the wave of success.
Yet, paradoxically, the ideal moment to snag a winning investment often arises during uncertain times like these. Why is that? Because the market’s jitters can push the prices of solid stocks and assets down to attractive levels. Picking them up on sale could mean you’re well-positioned to enjoy gains as they recover and thrive in the long term.
It’s crucial to keep in mind that the factors currently weighing the market down—whether it’s government policy changes, inflation spikes, or a looming recession—are typically short-lived. At the moment, investors are concerned about the tariffs imposed by President Donald Trump on imports from China, Canada, and Mexico, and the potential fallout on corporate earnings and the broader economy.
While these challenges might create a temporary setback, strong companies have the resilience to weather these storms and emerge successfully on the other side. With this in mind, is investing in the SPDR S&P 500 ETF Trust (SPY 0.56%)—essentially a bet on the S&P 500 index—the wisest move you can make right now? Let’s delve a little deeper.
First off, let’s chat about what an ETF, or exchange-traded fund, entails. It’s a collection of various stocks that follow a certain theme, like retail or biotech, or track an index, as is the case with our current focus. ETFs trade like stocks on the market, so if you’re familiar with buying stocks, you’re already halfway there. However, remember that ETFs carry a management fee, known as an expense ratio. To maximize your returns in the long run, aim for an ETF with an expense ratio below 1%. With a modest ratio of 0.09%, the SPDR S&P 500 ETF is a worthy contender.
Let’s turn our attention to this ETF specifically, and weigh whether it’s a savvy choice for your portfolio. This particular ETF shadows the S&P 500’s performance, meaning it’s a direct bet on the stock market at large. Keep in mind, this index compiles the dominant companies fueling today’s economy, and it’s regularly updated, ensuring your investment is always linked to industry leaders.
During market downturns, like the current scenario, you may notice the ETF dipping in value—it mirrors the S&P 500, after all. In fact, it’s lost over 6% in the last two-and-a-half weeks. During such periods, individual stocks in your portfolio may outperform. For example, despite the overall market slump, companies like Coca-Cola and AbbVie have seen their stocks rise over the past month. This demonstrates the wisdom in diversifying across various companies, sectors, and even between stocks and ETFs.
If you can only make a single investment right now, snapping up some shares of the SPDR S&P 500 ETF might be an insightful choice. Here’s why. Its recent price dip makes it a bargain, and more importantly, this investment immerses you in an index that boasts a history of unrivaled tenacity.
Historically, after each decline, the index has bounced back and surged to new heights. In fact, since it became a 500-company index in the late 1950s, the S&P 500 has touted an average annual return exceeding 10%.
Although pinpointing the market’s lowest point to make a perfect entry is notoriously difficult, the S&P 500’s track record fuels confidence that investments in it will yield favorable returns over time, irrespective of the initial moment. That’s why, even if the S&P 500 continues to dip temporarily, the SPDR S&P 500 ETF Trust remains a stellar buy today.
