New investors just starting out have many choices available to them, and deciding where to begin can be a challenge. Rather than choosing one stock or sector to invest in, investors can instead gain broad exposure to hundreds of the U.S. market’s best stocks through a broad-market S&P 500 ETF like the SPDR Portfolio S&P 500 ETF (SPLG).
I’m bullish on SPLG due to its strong history of returns and its easy access to the earnings power of over 500 of the U.S.’s best companies in one simple and efficient vehicle. Not only that, it does so for a very low fee, as we’ll discuss in the article. These factors make SPLG a sound choice for all investors. In particular, its instant diversification, extremely low cost, and impressive track record make it an especially appealing choice for new investors looking to make their first investment and to choose an investment to build their portfolios around.
What Is the SPLG ETF’s Strategy?
According to its issuer, State Street Global Advisors, SPLG is a “low-cost ETF that seeks to offer precise, comprehensive exposure to the US large-cap market segment.”
State Street also explains that SPLG is “one of the low-cost core SPDR Portfolio ETFs, a suite of portfolio building blocks designed to provide broad, diversified exposure to core asset classes.”
Harness 80% of the U.S. Stock Market with One ETF
This strategy plays out when you look at SPLG’s holdings. The fund simply invests in the S&P 500 (SPX), which “represents approximately 80% of the US market.”
This is a big part of what makes SPLG an ideal building block for investors who are just starting out—rather than picking one company or sector, you are immediately getting broad exposure to the companies that account for about 80% of the U.S. market. This includes many of the best, most profitable, and most innovative companies in the United States (and the world).
In fact, SPLG gives investors exposure to semiconductors and artificial intelligence (AI) through Nvidia (NVDA), e-commerce and the cloud through Amazon (AMZN), electric vehicles and renewable power through Tesla (TSLA), and so much more.
Below, you’ll find an overview of SPLG’s top 10 holdings using TipRanks’ holdings tool.
It’s worth noting that these are also some highly rated companies, according to TipRanks’ Smart Score. The Smart Score is TipRanks’ quantitative stock scoring system that gives stocks a score from one to 10, based on eight key market factors. Scores of eight, nine, or 10 are considered equivalent to an Outperform rating.
Many of SPLG’s top 10 holdings are rated highly by this system: Amazon and Meta Platforms (META) receive perfect 10 ratings, while Nvidia, Tesla, Alphabet (GOOGL), and Berkshire Hathaway (BRK.B) all receive Outperform-equivalent ratings of 8 or higher.
Owning Top U.S. Stocks Fuels SPLG’s Strong Returns
Owning these top U.S. stocks has proven to be a winning strategy that has generated strong long-term results for SPLG and its holders.
One can’t necessarily say that SPLG has beaten the market because SPLG is the market. Nevertheless, the long-term results have been strong. As of October 31, SPLG has generated an annualized return of 9.1%. Over the past five years, SPLG has posted an annualized return of 15.3%, and over the past 10 years, SPLG has posted an annualized return of 12.9%.
Looking at it from a different perspective, an investor who put $10,000 into SPLG five years ago would have $20,990 today, doubling their initial investment in five years. Moreover, an investor putting $10,000 into SPLG a decade ago would have an investment worth $34,490 today, more than tripling their money. While past performance is no guarantee of future results, this is a strong track record and a compelling proposition for new investors just starting out, and therefore makes SPLG an ideal cornerstone for the portfolios of new investors.
This ETF Delivers Cost-Effective Exposure
So what does SPLG charge for this strong performance and broad exposure to over 500 of the top stocks in the U.S.? With an expense ratio of just 0.02%, SPLG is one of the cheapest ETFs you’ll find in today’s market.
This 0.02% expense ratio means that an investor in the fund will pay just a negligible $2 in fees for every $10,000 invested on an annual basis. Assuming that the fund returns 5% annually going forward and maintains this expense ratio, this same investor will pay just a minuscule $26 in fees over the course of a decade. It’s hard to beat that kind of savings.
Perhaps the best way to put SPLG’s 0.02% expense ratio into perspective is to point out that it is significantly cheaper than many of the other popular broad-market ETFs available to investors. For instance, the Vanguard S&P 500 ETF (VOO), one of the largest ETFs from the low-cost fund giant Vanguard, charges a low 0.03%, but it’s still 50% more expensive than SPLG. Similarly, the iShares Core S&P Total U.S. Stock Market ETF also charges 0.03%. The SPDR S&P 500 ETF (SPY), the largest ETF (and from the same issuer as SPLG), charges 0.09%, which is four and a half times higher than SPLG.
Risks to Keep in Mind
Are there any risks to investing in SPLG? Of course, there are, as no investment comes without risk.
The immediate risk that comes to mind is that the S&P 500’s valuation is fairly elevated compared to where it has typically traded historically. Right now, the index trades at a price-to-earnings multiple of 25.4 times earnings, above its five-year average of 19.6 times earnings and its 10-year average of 18.1 times earnings (according to data from Factset).
While the valuation is relatively high, these are some of America’s strongest companies, and it’s difficult to bet against their earnings growth in the coming years, with the valuation likely adjusting over time. For example, with S&P 500 companies expected to grow earnings next year, the forward price-to-earnings multiple of 22.2 is still slightly above historical levels but appears more reasonable.
Plus, new investors can start a position today and build it over time using dollar-cost averaging, where they invest a fixed amount at regular intervals. Alternatively, they can begin with a portion of their capital and add more during periods of market weakness to secure better entry points at a lower valuation.
Is SPLG Stock a Buy?
Turning to Wall Street, SPLG earns a Strong Buy consensus rating based on 401 Buys, 96 Holds, and one Sell rating assigned in the past three months. The average SPLG stock price target of $76.61 implies 9.1% upside potential from current levels.
A Strong Foundation for New Investors
In conclusion, I’m bullish on SPLG based on its strong track record of providing great returns to investors for a low fee over the long term. It gives investors broad exposure to over 500 of the top stocks in the U.S. market for an ultra-low expense ratio of just 0.02%, making it a sound cornerstone for new investors to build their portfolios around.
