5 Reasons Why SPY is the ETF to Buy (AMEX: SPY)

By Ryan Delany - Personal Finance & Investing for Military & Marine Corps:

Have Your Cake and Eat it Too

You can have your cake and eat it too with Standard and Poor's Depositary Receipts, also known as SPDRs (AMEX: SPY). Recently I wrote a post about one of the key advantages a small investor has - the ability to focus his investment eggs in a few well-chosen baskets ("Don’t Diversify!"). SPDRs, an exchange-traded fund that mimics the S&P 500 - which is diversified in 500 stocks - is one of those good baskets.

SPDRs (AMEX: SPY) earns you similar advantages to mutual funds without some of the negative consequences. The S&P 500 is made up of 500 growth and blue chip stocks that represent the various industries of the American stock market. These committee-selected stocks represent a portfolio of shares in powerhouses of American industry. In mutual funds, the analogous committees are groups of fund managers who are paid hefty fees. SPDRs ETF, by contrast, has a management-expense ratio of less than 0.1% a year. If you want diversification without the downsides of mutual funds or having to spread yourself thin by studying many companies, pick up some SPDRs.

(Article interests: AMEX:DIA,SPY,QLD,DOG,SDS, Nasdaq: QQQQ, NYSE: NYX)

Here are 5 reasons to buy SPDRs:

1. Buying the best at a bargain

It's official: We are in a bear market, and history indicates that if you are smart and long-term oriented, you are looking to buy. Warren Buffet announced his affection for bear markets to shareholders in May:

"If a stock [I own] goes down 50%, I'd look forward to it. In fact, I would offer you a significant sum of money if you could give me the opportunity for all of my stocks to go down 50% over the next month."

Warren Buffet buys great stocks, and if it's a bear market, he buys them at a discount. I believe the S&P 500 is made up of great stocks of American industry. Could they go down more? Yes. Are the great stocks of America a good investment? You bet. All patriotism aside, the business of America is business. You better believe that whatever ups and downs will come, the best of American stocks should make money for their shareholders over the long term.

2. A weak dollar = more exports

Although the dollar has recently made big gains against the euro, Morgan Stanley still predicts the dollar to come near a record low by October. This is good for American exporters because their products will be cheap in foreign markets. We can expect this cheap dollar to boost those sales.

3. Investors often profit from going against the flow, and the flow of money is fleeing the market

A majority of Americans think the economy is in bad shape, and fear is driving investors out of stocks and into cash and bonds. When the crowd is going one way, the smart investor often looks the other way.

4. Low long-term risk

In the short-term - (I'm talking less than 5 years) - stocks can be very risky, but over the long-term, the stock market has proven not very risky at all. Over the last ten years, the S&P 500 has not done very well though - less than 3% gain. Historically speaking though, long periods of losing money are followed by long periods of gaining money. Are past returns an indication of future returns? No, but they can help us make an educated guess.

What do you think is more likely: The US stock market will have downswings and upswings, or the stock market will have a downswing and stay down? Either is possible, but I will invest my money based on the assumption that American companies will continue to be an economic powerhouse.

5. Stocks typically rise after elections

Regardless of who wins the election in November, history indicates that chances are good that the stock market will rise. This is an instance in which being diversified in the whole market (with SPDRs) will help you. We can't guarantee which stocks will rise after the election, but historically the stock market as a whole gains after elections. Buying SPDRs should thus ensure that you profit from this gain.

Disclaimer: This article expresses the opinion of Ryan Delany, and does not necessarily reflect the opinions of the Wall Street Greek website or its founder. Every investor should exercise his or her own due diligence and research when investing in the stock market, and this report does not constitute financial advice. Ryan currently owns no SPDRs but he is seriously considering purchasing some in the future. Please see our full disclosure at www.WallStreetGreek.blogspot.com.