What is a spider and why should I buy one?

By Casey Murphy AAA
A:

The term spider is the commonly-used expression to describe the the Standard & Poor's Depository Receipt (SPDR). This type of investment vehicle is an exchange-traded fund (ETF). You can think of an ETF as a basket of securities (like a mutual fund) that trades like a stock. In the case of spiders, the basket of stocks is the S&P 500 index. One of the reasons for buying a SPDR is that it is a quick and easy way to have significant diversification. SPDRs are also relatively inexpensive compared to what it would cost to create this type of portfolio yourself.

SPDRs contain one-tenth of the S&P 500 index portfolio, which is why the cost to buy one unit of this asset is nearly equal to one-tenth of the S&P 500 index level. SPDRs trade on the American Stock Exchange (AMEX) under the symbol SPY. Like all ETFs, they trade in the same manner as regular stocks having continuous liquidity and provide regular dividend payments. This type of investment is ideal for those who believe in passive management, a strategy that attempts to mirror a market index with no desire to try and beat the market. See our Special Feature: Exchange-Traded Funds for everything you need to know about ETFs.

For more on index investing, check out Index Investing Tutorial, Introduction To Exchange-Traded Funds and Advantages Of Exchange-Traded Funds.

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