What is a spider and why should I buy one?

The term spider is the commonly-used expression to describe 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 an SPDR is that it is often (though not always) 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 seek to offer exposure to the S&P 500 index portfolio. 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.

Advisor Insight

Russell Wayne, CFP®
Sound Asset Management Inc., Weston, CT

State Street Global Advisors, which sponsors spiders, has become one of the industry leaders in ETFs. There are now well over 100 SPDR ETFs, with a variety of specializations, including U.S. equities, international equities, fixed income, smart beta, commodities, and real assets. Some are even actively managed.

ETFs are similar to mutual funds, but their annual expense ratios are usually significantly lower and they are bought and sold over the course of the trading day, instead of having their price set at the end of the day. Whether you should buy an SPDR depends on your portfolio’s asset allocation and how you feel about the asset classes it includes.

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