Investing your hard-earned money is one of the best ways to achieve your financial goals, but it can be tricky and challenging. If you’re considering adding RSP or SPY to your portfolio, here’s some useful information to help you decide.
Investing is a smart move for growing your money, and most people would agree. However, it’s crucial to understand which assets and products will best support your financial journey. With so many investment options available, how do you choose the right one for your portfolio? Let’s take a closer look at two popular funds: RSP and SPY.
Exchange-Traded Funds (ETFs) are often preferred over mutual funds because they’re more accessible. Mutual funds can only be bought through the issuing stock brokerage, while ETFs include all 500 companies in the S&P 500, usually weighted by their market cap. This means larger companies have a bigger impact on share prices. However, ETFs can only be purchased as whole shares, so if an ETF costs $80, you’ll need to invest in multiples of $80.
The SPDR S&P 500 ETF Trust (SPY) and Invesco S&P 500 Equal Weight ETF (RSP) are two of the most popular ETFs. While both track the S&P 500, they have different methods and characteristics.
RSP aims to replicate the S&P 500 index by equally weighting all the stocks, which increases the influence of smaller mid-cap companies and reduces the risk of a single stock’s poor performance affecting the entire portfolio. This equal-weight approach can provide a more balanced exposure compared to SPY, but it also comes with a higher expense ratio, making RSP more expensive and less liquid than SPY.
SPY, on the other hand, tracks the S&P 500 based on market capitalization, giving more weight to larger companies. SPY is the largest ETF in the world and is popular among long-term investors focused on large-cap US stocks. It also distributes dividends quarterly, appealing to those who want a mix of safety and risk.
Both RSP and SPY invest in large US stocks, but their weighting methods create differences in their top holdings and sector allocations. For example, technology stocks make up a larger portion of SPY than RSP.
When comparing annual returns, RSP has occasionally performed worse in down markets, indicating higher volatility. Over the past 16 years, RSP has had better returns, but SPY has outperformed in the last 10, 5, and 1-year periods. RSP has a higher expense ratio (0.20%) compared to SPY (0.09%), meaning RSP investors pay more in fees. SPY also offers a slightly higher dividend yield (1.5% vs. RSP’s 1.35%).
In terms of assets under management (AUM), SPY is much larger, with $464.3 billion compared to RSP’s $31.17 billion. This size reflects greater confidence in SPY.
Ultimately, the choice between RSP and SPY depends on your investment strategy. If you seek growth and can handle more volatility, RSP might be suitable. If you prefer stability and lower fees, SPY could be the better option. Remember, past performance doesn’t guarantee future results.