why $spy is best
Please read before commenting about a slightly higher fee. I instead hope to share some perspective about why blindly recommending the lowest expense ratio ETF may not be the best strategy. The point of this post is to explain that the liquidity SPY offers is worth the tradeoff of a minutely bigger expense ratio. In ELI5 terms, this means that you will always get the best price when buying SPY. $SPYs average spread is one cent. $IVVs average spread is 3 cents for context. > On average, SPY trades $18.3 billion daily, at a subpennywide spread. No other ETF even comes close. (https://www.etf.com/sections/features-and-news/why-spy-king-liquidity) This above quote was from 2019. The daily volume is now currently over $28 billion. For context: $IVV daily volume: under $2b. In fact the disparity is so large that $SPY makes up >90% of the trading volume of the 3 most popular S&P etfs (SPY, IVV, VOO). If you are ever trying to exit positions, SPY will be your safest bet on getting the best exit price possible. And inversely, also the best entry price you will be able to get. ----- ----- ----- Closing section from the same article: Does ETF liquidity still matter if you're a smaller investor, with a smaller asset base who isn't trading as much? It matters to everybody. Bid/ask spreads are paid by everybody. You might not trade quarterly, monthly or even annually, but you have to think about how important trading costs are to your overall portfolio implementation. The last thing I'll say is how important liquidity is during times of volatility, especially when you're heavily trading a portfolio. Going for the product with the lowest expense ratio may not actually end up being the lowest-cost product. We’re constantly hearing, "Well, in periods of volatility, I just won't trade." While that may be true in most instances, there are some periods, like in the fourth quarter, where I'm hard-pressed to think no one was rebalancing their portfolios heading into year-end. Having the ability to tap into something extremely liquid, with consistency during periods of volatility—but also tranquility—can be additive to the portfolio construction process. ----- ----- ----- Again, the aim of this post is to try and teach people on this blind channel something new about finance by sharing an alternative viewpoint and factual information to help you all make better informed decisions. I gain nothing by getting people to purchase SPY instead of whatever voo / ivv / vti / ogeax / equivalent of the S&P500, as its not as if this post will move the markets. Here are some questions for you to consider. 1. How important are trading fees to you? Do you prefer hidden fees baked into the spread, robinhood style? Or instead paying your broker 1c/sh for the best price possible? And does this preference not extend to the underlying purchase? In other words, is transparency important to you? 2. How important is liquidity to you? Would you prefer the flexibility and peace of mind being able to exit a position at any time and be sure you are getting the best price, or would you rather ride the volatility out and hope it all turns out fine? Do you plan on eventually drawing down your position (selling) for income? A final quote: ``` "We work out that owning SPY is actually cheaper than owning IVV or VOO when you bring in these other … positives in lending and lower transaction costs," Ms. Corman said, referring to the BlackRock and Vanguard funds by their ticker symbols. ``` https://www.pionline.com/exchange-traded-funds/30-years-later-and-still-top-ssgas-flagship-etf
Bruh if you're investing why do you care about spreads in cents which is main for trading. And there are more than couple with few cents spread
exit liquidity is very important. And asking why tighter spreads are important is like asking why somebody pays about commissions when they could use robinhood for "free".
Are we really getting investment advice from a bezos slave?
Fidelity have a ETF that track spy with 0% expense ratio. There you go, all the benefits of spy without all the downside
Which?
Isn’t your statement self contradictory? How is it possible that it provides best price for both buyers and sellers? It can be one or the other but not both unless I am missing something Moreover, expense ratio is an ongoing cost. Buying and selling is a once in a few years event for the same money
You are indeed missing something. It is not self contradictory at all. You sell and buy at better prices overall when trading with a tighter spread. This is a fact. Specifically, you are wrong because you can only purchase at the ask price, you cant sell at the ask price. This works the same way conversely: you can sell only sell at the bid price, you cant buy at it. Here's a worked example: Let's say a spread on a random stock is 1 dollar, with a $200 mid (average of best bid and best ask) price. > The best price you can buy at (the "ask" price) is $200.5. > The best price you can sell straight back at (aka the "bid" price) is $199.5. You won't get a FILL at $200.5 if you try to sell there - you will only get a fill selling at 199.5 or below. Therefore, it is IMPOSSIBLE to be as you say, best for only "one or the other". Try and work through the example again, but with a bid ask spread of 1 cent instead of 1 dollar. You will see how it is better for both buyers and sellers. (They can only sell immediately at 199.5, and buy at 200.5). Again, you can only purchase at the ask price, and sell at the bid price. This is very important to understand (and quite a basic concept to be completely honest). I'd like to reiterate from my original post: "Bid/ask spreads are paid by everybody". The smaller, the better, for *everyone*. Thanks for your question though! It was a good one, and demonstrates the level of knowledge on here, which is why I am posting this - in order to try and educate people.
Thanks for the detailed answer, though I am still not clear how they are paid by everyone. In my understanding it is a zero sum game as the broker doesn’t get any money. So if the average price is 200 then the average buy/sell price is $200 regardless of the spread. The difference comes in liquidity when you want to fill your order immediately then you have to buy at the top of the range or sell at the bottom. On the other end, however, there will be someone selling at the top of the range or buying at the bottom. So it is the same average cost for the whole pool regardless of the spread