The SPDR S&P 500 ETF Trust, or the SPY, has consistently gained 10% since 1993. When the SPY first debuted it opened its doors for potential investors to buy shares at a price of $45 a share.
Now almost 30 years later the SPY has increased to a massive value of $445! If you had invested $10,000 in the SPY in 1993 then by 2021 it would have turned into almost $100,000. That is a huge 10x return in around 30 years.
The reason the SPY has always gone up over the past 30 years is because of the funds holdings. The SPY invests in the top 500 U.S companies by market cap. This means that as a U.S company gets bigger so will its representation within the SPY. As such, when you buy the SPY you are buying into the U.S economic machine.
If that explanation didn’t make any sense, don’t worry. I am going to fully explain and show you how, why, and most importantly how to profit from the constant growth of SPY.
Here at Chronohistoria I teach people to consistently generate above average returns in the U.S market. There is a free newsletter sign up on the right side of the screen if you’re interested in keeping up to date on the latest stock research and tips.
Now, let’s jump right into why the spy always goes up.
What Exactly is the SPY?
Before we even begin to look at why the SPY always seems to go up we first need to figure out what the SPY is.
The SPY is an ETF, or electronically traded fund. You can think of the SPY as a pie where each holding (stock) has a portion of the total pie. The SPY holds the top 500 companies by market cap on the U.S market. These are the most successful U.S companies, companies such as Google, Apple, Microsoft, Amazon, and Facebook.
There are 500 of these successful companies in the United States. These large companies are given a total market cap of the U.S market. This list of companies is called an index, and the largest index for the top U.S 500 U.S companies is the S&P 500. Here are the top 10 companies by market cap in the S&P 500. (Source)
- Apple Inc (6.18%)
- Microsoft Corporation (5.9%)
- Amazon.com Inc (3.9%)
- Facebook (2.4%)
- Google (2.24%)
- Tesla Inc (1.5%)
- NVIDA Corporation (1.4%)
- Berkshire Hathaway (1.39%)
- JPMorgan Chase & Co (1.26%)
- Johnson & Johnson (1.16%)
What SPY does is split its total capital invested from investors among these 500 companies. That means for every 1 share of SPY you own you have 6% exposure to Apple, 5% exposure to Microsoft, and 4% exposure to Amazon, etc.
Essentially when you buy the SPY you buy a small portion of each of the top 500 companies in the United States.
So, Why Does the SPY Always Go Up?
The reason that the SPY always goes up is because it’s only interested in investing in the most successful companies in the United States. If a company starts to ‘fail’ then it will be kicked out of the SPY and replaced with a more successful company.
So long as the U.S has a good and growing economy so will the SPY continue to go up. If you think that the overall U.S economy will continue to grow then chances are you should probably buy the SPY.
This is the reason for the SPY’s success over the last 30 years. In the past 30 years the U.S has seen huge innovation in technology and resource extraction. This has pushed the GDP of the U.S up at an insane rate of 6.6% increase per quarter for the past year. (Source)
Because the overall U.S economy has continued to increase at an exponential rate the SPY has increased as well.
The secret to why the SPY always increases is because of the dynamic nature of the underlying index. Essentially what this means is that when company 500 on the S&P 500 index starts losing market cap to a competitor they are replaced in the index.
Over time this has led to only the best companies who consistently innovate and grow being listed on the S&P 500. This means that your investment is always placed in the best possible companies by market cap.
Now this does not mean that the SPY is the best investment. Just that by investing in the SPY you are placing your investment in companies that have a track record of returning increasing revenue and are damn good at what they do.
Because of all of the above factors the SPY has consistently grown year over year and remains the most invested in an ETF on the U.S market.
How to Make Profit on the SPY Always Going Up?
Since we now know what the SPY is why it always goes up over time the final step is to start making money.
Hands down, the best way to generate a return on the SPY with the least amount of risk is to simply buy and hold the shares.
This is because liquidity on shares is always high. Further, the share price consistently grows at around 10% per year. This means that every month you hold the SPY you can expect around a 0.83% return on your total investment.
That means that a $10,000 investment will compound at a .83% per month. After around 10 years your $10,000 investment would have turned into $26,000!
That is a huge ROI from just a passive investment. I know a lot of people who just throw their extra income from work/business into SPY and let it compound. They end up achieving financial freedom within a couple years and retiring a couple after that.
The trick is to think in the long term. What you are putting away now will compound over time and lead to absolutely insane returns down the road. Further, since investing in the SPY is investing in the top 500 companies in the U.S you can rest easy knowing your investment is safe.
If you want to return a higher than normal market return (10%) then check out some of the other articles on this site. I have several years of experience generating Alpha within high net-worth client accounts while managing risk. While not every strategy is open to you the underlying thesis for investing remains the same, to make money.
There you have it. That is why the SPY always goes up and how to profit from its rise. I hold the SPY and other ETF’s such as VTI that follow the same Index. Overall it forms a great backbone for your portfolio as you invest in huge companies that are stable.
Eventually if you want to achieve higher than 10% returns you need to start branching off into other individual stocks. These stocks, if picked properly, should generate Alpha within your portfolio. Alpha stands for higher than normal market returns, and it’s what will get you to the ‘big boy’ ROI that will help you expedite your process towards financial freedom.
As always if you like content like this then feel free to subscribe to the free newsletter on the top right of this page. I hate spam, so I only send out vital info such as new research posts so you are kept up to date!
Further, you can check out some of the other articles below.
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Until we meet again, I wish you the best of luck in your investing journey.