Understanding $SPY for Long Term Investing

When beginners look for a simple way to invest in the U.S. stock market, it helps to start with familiar names. The SPDR S&P 500 ETF Trust, known by its ticker $SPY, offers exposure to the same 500 large‑company index you hear about in the news.

In the Invest Your Coffee project, one of the reasons we chose SPY is because its name clearly signals that it tracks the S&P 500 Index, making it less likely to confuse newer investors. This discussion focuses on long‑term investing, not short‑term trading.

What Is $SPY?

SPY is an exchange‑traded fund that gives investors a slice of the entire S&P 500. The fund is organized as a unit investment trust (UIT), so it owns all of the roughly 500 largest U.S. companies in their market‑cap weights.

When you buy a share of $SPY you’re buying a basket of stocks that includes technology giants like Nvidia, Microsoft and Apple, consumer staples such as Walmart, and industrial leaders. The fund seeks to match the index’s price and dividend performance.

SPY distributes dividends quarterly and doesn’t reinvest them inside the fund which is why some investors prefer funds like $VOO instead to invest in the S&P 500.

Why Investors Use $SPY

There are a few key reasons that investors buy $SPY.

Simplicity and diversification: With one purchase you gain exposure to hundreds of companies across all sectors, providing instant diversification. You don’t need to pick stocks or rebalance; the fund simply mirrors the benchmark index.

Long track record: Launched in 1993, SPY was the first U.S. ETF and has built a reliable record of tracking the market. Its massive asset base and transparent holdings give confidence to many investors.

Ease of buying and selling: SPY is the world’s most traded ETF. This deep liquidity means bid‑ask spreads are tight and orders are filled quickly, whether you’re investing a small amount or moving a large position.

Works with dollar‑cost averaging: Because shares trade on an exchange like stocks and fractional shares are often available, investors can buy small amounts regularly. Dollar‑cost averaging helps smooth out price fluctuations and encourages disciplined investing over time.

These are the primary reasons investors choose $SPY but they are not the only ones. It's always important to do your own research before investing in anything.

$SPY vs $VOO

Another popular S&P 500 ETF is $VOO, issued by Vanguard. VOO tracks the same index and has nearly identical holdings and risk characteristics.

The main differences come down to fees and structure. As of 2025, SPY’s expense ratio is 0.0945%, whereas VOO charges 0.03%.

• SPY is structured as a unit investment trust, which means it cannot reinvest dividends and tends to cost more to administer.

• VOO is an open‑ended ETF that reinvests dividends and can lend securities.

Both funds are highly liquid; SPY often appeals to active traders because of its enormous trading volume, while VOO’s lower fee makes it attractive for cost‑conscious long‑term investors.

For most beginners, the choice is a matter of preference because both funds aim to replicate the same benchmark and deliver similar returns.

Risks and Realistic Expectations

Investing in SPY means accepting the ups and downs of the broader market. Bear markets (declines of 20% or more) have occurred 27 times since 1928, with average losses around 35%, yet there have also been 28 bull markets, with average gains of 112%.

Bear markets tend to be shorter (about 9.6 months) than bull markets (about 2.7 years). Staying invested through these cycles is important; roughly 42% of the S&P 500’s strongest days occur during bear markets and another 36% occur in the early stages of a new bull market.

If you try to time the market and miss just a few strong days, your long‑term returns can suffer. In other words, patience matters more than short‑term technical analysis. Since SPY’s beta is around 1.00, its volatility closely matches the market.

Investors should be prepared for drawdowns and understand that shares can fall significantly during downturns. Diversification across asset classes (e.g., bonds or international stocks) may help dampen volatility.

There's a saying that's so common its become cliché but that doesn't mean it isn't accurate; time in the market is better than timing the market. The chances you time it just right to buy in and sell is extremely unlikely. Buy and hold for the long-term and downturns will look like minor dips in the road.

Conclusion

Many excellent funds are available to investors. Some may outperform the S&P 500 and others may lag behind.

No fund is guaranteed to deliver positive returns.

Always conduct your own research and ensure an investment aligns with your goals and risk tolerance.

SPY was chosen for the Invest Your Coffee project because its name clearly ties to the S&P 500 and its long history, liquidity, and simplicity make it suitable for beginners. While other funds such as VOO offer lower fees and similar exposure, the reasons above explain why we invest in SPY.

$SPY ETF Trust Fundamentals

What the ETF is and How it is Structured

The SPDR® S&P 500® ETF Trust (ticker $SPY) is an exchange‑traded fund launched in January 1993. It was the first ETF listed in the United States.

The fund seeks to provide investment results that, before expenses, correspond to the price and yield performance of the S&P 500 Index. Because of its age, the ETF is organized as a unit investment trust (UIT), meaning it holds a fixed portfolio and fully replicates the index by owning all S&P 500 constituents at their target weights.

Unlike many modern ETFs, the UIT structure prevents SPY from lending out shares or reinvesting cash flows; as a result the fund holds dividends in cash until distribution.

Index Tracked

The underlying benchmark, the S&P 500 Index, is a float‑adjusted, market‑cap‑weighted index designed to measure the performance of the large‑capitalization segment of the U.S. equity market. It includes approximately 500 of the largest U.S. companies across all eleven Global Industry Classification Standard (GICS) sectors.

Expense Ratio

According to State Street’s September 2025 fact sheet, SPY’s gross and net expense ratios are 0.0945%. Investopedia notes that this fee is higher than rival S&P 500 ETFs; the SPDR’s expense ratio of 0.0945% is more than triple Vanguard’s VOO (0.03%) and BlackRock’s IVV (0.03%).

Liquidity and Trading Volume

SPY is one of the most heavily traded securities in the world. State Street describes it as “the world’s most traded and most liquid ETF,” meaning investors can enter or exit positions quickly and at tight bid‑ask spreads. Investopedia adds that SPY shares trade three to four times as frequently as shares of comparable S&P 500 ETFs like VOO and IVV, making it easy for sellers to convert holdings to cash. The ETF’s average daily trading volume (ADTV) in the billions of dollars further supports its deep liquidity.

Dividend Behavior

SPY holds dividend payments in cash and distributes them quarterly. Unlike some rival ETFs that reinvest dividends or invest cash in low‑risk instruments, SPY simply pays out the cash when distributions are scheduled. The September 2025 fact sheet shows a 30‑day SEC yield of 1.05%.

Issuer

The fund is issued by State Street Global Advisors, now operating under State Street Investment Management. The trust’s address and contact information are provided in the fact sheet. As a UIT, the fund cannot lend its shares or reinvest dividends.

Historical Role

SPY was the first U.S. exchange‑traded fund and remains one of the largest. The Investopedia article notes that it celebrated its 31st birthday on Jan 22 2024 and has grown from $6.53 million in assets in 1993 to more than $606 billion in assets under management (AUM) by May 2025. Its longevity and size make it a benchmark for passive investing and a bellwether for the ETF industry.