The Market, to me, is best defined as the S&P 500® Index. To “buy the market”, you can easily buy the SPY ETF. As we look at investment strategies that are designed to help you maximize returns and minimize risk, its important that you understand some of the essential elements of investing. Let’s start by a simple and specific definition of “The Market”.
The S&P 500® Index (SPY) is composed of selected stocks from five hundred (500) issuers, all of which are listed on national stock exchanges and spans over approximately 24 separate industry groups.
You can check out the original article about the stock market from our friends at by . Nerd Wallet and Investopedia are a couple of my favorite sources of financial education and I often use their articles in my Personal Finance class at the Bauer College of Business at University of Houston.
The Market Defined
The term “stock market” often refers to one of the major stock market indexes, such as the Dow Jones Industrial Average or the.
How to Buy The Market
Three Popular ETFs to Consider
Why SPY
The S&P 500® Index is composed of selected stocks from five hundred (500) issuers, all of which are listed on national stock exchanges and spans over approximately 24 separate industry groups.
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SPY or The SPDR® S&P 500® ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500®Index (the “Index”)
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The S&P 500 Index is a diversified large cap U.S. index that holds companies across all eleven GICS sectors
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Launched in January 1993, SPY was the very first exchange traded fund listed in the United States
Index Characteristics as of Mar 25 2022
| Est. 3-5 Year EPS Growth | Number of Holdings | Price/Cash Flow | Price/Earnings | Price/Earnings Ratio FY1 | ||
|---|---|---|---|---|---|---|
| 14.25% | 505 | 16.13 | 22.12 | 20.23 |
Index Statistics as of Mar 25 2022
| Average Size | Size Range | |||
|---|---|---|---|---|
| Weighted Average Market Cap | Mean | Median | Largest | Smallest |
| $644,067.50 M | $84,528.73 M | $31,985.58 M | $2,855,073.50 M | $5,888.86 M |
Yields as of Mar 24 2022
| 30 Day SEC Yield | 30 Day SEC Yield (Unsubsidized) | Fund Distribution Yield | Index Dividend Yield |
|---|---|---|---|
| 1.25% | – | 1.29% | 1.39% |
Why DIA
The Dow Jones® Industrial AverageSM (DJIA) is composed of thirty (30) “blue-chip” U.S. stocks. At 100-plus years, it is the oldest continuing U.S. market index. The DJIA has evolved into the most recognizable stock indicator in the world, and the only index composed of companies that have sustained earnings performance over a significant period of time.
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The SPDR® Dow Jones® Industrial AverageSM ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial AverageSM (the “Index”)
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The Dow Jones Industrial AverageSM (DJIA) is composed of 30 “blue-chip” U.S. stocks
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The DJIA is the oldest continuous barometer of the U.S. stock market, and the most widely quoted indicator of U.S. stock market activity
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The DJIA is a price weighted index of 30 component common stocks
Why QQQ
QQQ is an ETF that tracks the Nasdaq 100 Index. It has 102 holdings and is the fourth-most popular ETF in the world.1 The index excludes financial companies and is based on market . Like the Nasdaq 100, QQQ stock holdings are heavily toward large-cap technology companies. at QQQ were $212.25 billion as of Dec. 19, 2021.
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The Invesco QQQ ETF is a popular exchange-traded fund that tracks the Nasdaq 100 Index.
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QQQ stock holdings are dominated by big technology-related companies such as Apple, Amazon, Google, and Meta (formerly Facebook).
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The QQQ ETF offers investors big rewards during bull markets, the potential for long-term growth, ready liquidity, and low fees.
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QQQ usually declines more in bear markets, has high sector risk, often appears overvalued, and holds no small-cap stocks.
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This ETF allows traders to invest in the largest 100 non-financial companies listed on the Nasdaq.
Passive ETF Strategy
The Invesco QQQ ETF is an that tracks the . Because it the index, the QQQ share price goes up and down along with the tech-heavy Nasdaq 100.
Passive management keeps fees low, and investors are rewarded with the full gains of the index if it rises. But they also have to bear the Nasdaq 100’s full losses when it falls. In this article, we explain how the QQQ ETF works and then consider the risks and rewards associated with trading the QQQ.
Buying Stocks
When you purchase a public company’s stock, you’re purchasing a small piece of that company. Because it’s hard to track every single company, the Dow and S&P indexes include a section of the stock market and their performance is viewed as representative of the entire market.
You’ll usually buy stocks online through the stock market, which anyone can access with a, robo-advisor or employee retirement plan.
You don’t have to officially become an “investor” to invest in the stock market — for the most part, it’s open to anyone.
The stock market is regulated by the U.S. Securities and Exchange Commission, and the SEC’s mission is to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”
You might see a news headline that says the stock market has moved lower, or that the stock market closed up or down for the day. Most often, this means stock market indexes have moved up or down, meaning the stocks within the index have either gained or lost value as a whole. Investors who buy and sell stocks hope to turn a profit through this movement in stock prices.
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How The Market works
The concept behind how the stock market works is pretty simple. The stock market lets buyers and sellers negotiate prices and make trades.
The stock market works through a network of exchanges — you may have heard of the New York Stock Exchange or the Nasdaq. Companies list shares of their stock on an exchange through a process called an . Investors purchase those shares, which allows the company to raise money to grow its business. Investors can then buy and sell these stocks among themselves, and the exchange tracks the supply and demand of each listed stock.
That supply and demand help determine the price for each security, or the levels at which stock market participants — investors and traders — are willing to buy or sell.
Bid, Ask and Spread
Buyers offer a “bid,” or the highest amount they’re willing to pay, which is usually lower than the amount sellers “ask” for in exchange.
This difference is called the bid-ask spread. For a trade to occur, a buyer needs to increase his price or a seller needs to decrease hers.
This all may sound complicated, but computer algorithms generally do most of price-setting calculations. When buying stock, you’ll see the bid, ask, and bid-ask spread on your broker’s website, but in many cases, the difference will be pennies, and won’t be of much concern for beginner and long-term investors.
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Historically, stock trades likely took place in a physical marketplace. These days, the stock market works electronically, through the internet and online stockbrokers. Each trade happens on a stock-by-stock basis, but overall stock prices often move in tandem because of news, political events, economic reports and other factors.
» See NerdWallet’s list of the
What is the stock market doing today?
Investors often track the stock market’s performance by looking at a broad market index like the S&P 500 or the DJIA. The chart below shows the current performance of the stock market — as measured by the S&P 500’s closing price on the most recent trading day — as well as the S&P 500’s historical performance since 1990.
Stock market data may be delayed up to 20 minutes, and is intended solely for informational purposes, not for trading purposes.
The Market and Volatility
Investing in the stock market does come with risks, but with the right investment strategies, it can be done safely with minimal risk of long-term losses. Day trading, which requires rapidly buying and selling stocks based on price swings, is extremely risky. Conversely, investing in the stock market for the long-term has proven to be an excellent way to build wealth over time.
For example, the S&P 500 has a historical average annualized total return of about 10% before adjusting for inflation. However, rarely will the market provide that return on a year-to-year basis. Some years the stock market could end down significantly, others up tremendously.
These large swings are due to market volatility, or periods when stock prices rise and fall unexpectedly.
If you’re actively buying and selling stocks, there’s a good chance you’ll get it wrong at some point, buying or selling at the wrong time, resulting in a loss. The key to investing safely is to stay invested — through the ups and the downs — in low-cost index funds that track the whole market, so that your returns might mirror the historical average.
How do you invest in the stock market?
If you have a 401(k) through your workplace, you may already be invested in the stock market. Mutual funds, which are often composed of stocks from many different companies, are common in 401(k)s.
You can purchase individual stocks through a brokerage account or an individual retirement account like an IRA. Both accounts can be opened at an online broker, through which you can buy and sell investments. The broker acts as the middleman between you and the stock exchanges.
Online brokerages have made the signup process simple, and once you fund the account, you can take your time selecting the right investments for you.
With any investment, there are risks. But stocks carry more risk — and more potential for reward — than some other securities. While the market’s history of gains suggests that a diversified stock portfolio will increase in value over time, stocks also experience sudden dips.
To build a diversified portfolio without purchasing many individual stocks, you can invest in a type of mutual fund called an index fund or an exchange-traded fund. These funds aim to passively mirror the performance of an index by holding all of the stocks or investments in that index. For example, you can invest in both the DJIA and the S&P 500 — as well as other market indexes — through index funds and ETFs.
Types of Investment Vehicles
Stocks
Bonds
Mutual Funds
Index Funds
ETF – Exchange Traded Funds
Stocks and stock mutual funds are ideal for a long time horizon — like retirement — but unsuitable for a short-term investment (generally defined as money you need for an expense within five years). With a short-term investment and a hard deadline, there’s a greater chance you’ll need that money back before the market has had time to recover losses.
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