I just wrote about the fact that I missed the last buying opportunity when the market stormed back in late February and March 2016. When you pick and choose what individual stocks to buy and when to buy them like I do, that can happen all too often.
But I’m a bit fearful to buy anything right now as I worry the market is in for a lot more volatility this year. So, I have decided to do something different that will take advantage of a falling market if it happens: dollar cost average into the SPY exchange-traded fund.
For each of the next 12 months, I will buy approximately $4,000 of the S&P 500 ETF “SPY”. That will be a total investment of about $48,000 spread out over a year, give or take a little since I will buy whole shares that add up to about $4,000 each time.
What is “SPY”
SPY is an exchange traded fund that closely mirrors the S&P 500 index. It is comprised of the stocks of just about every meaningful company on the US stock markets and here are the top holdings as of 5/3/2016:
To get all the information you want about this ETF click here and make sure you notice the tabs toward the top of the page labeled “Fund Overview”, “Performance”, “Holdings”, and “Related Documents”.
The expenses are very low for this ETF and it pays a dividend that right now is around 2%. It trades exactly like a stock, meaning you can buy and sell through your online broker account with a simple push of a button any time the market is open.
I’ve written before why I prefer individual stocks to mutual funds and while this isn’t a mutual fund “managed” by some guru, it isn’t a stock either. It is a simple and inexpensive way to play the whole market: basically, if the stock market goes up, so will this ETF and If the market goes down, it will too.
Why I’m Buying SPY Twelve Times
Many financial experts including Warren Buffett recommend investors would do best by just buying the whole market like this rather than trying to guess what individual stocks will outperform. So, that is what I am going to do with about 15% of my portfolio.
Right now I don’t know which way the market will go in 2016 and it seems like the bull market of 2009 to 2014 has fizzled out. 2015 was pretty much a flat year and 2016 has started out like a roller coaster. Because of this, I think it is a good decision to buy this SPY ETF every month no matter whether the market goes up or down and that way I’m not jumping in all at once. I’ll be buying it at a lower price if the market falls and at a higher price if the market rises and my cumulative price will be the average of everything.
Dollar cost averaging like this is a long term strategy meant to lessen the risks of timing the market. Since I will be buying SPY every month whether it goes up or down. I won’t have to stress about when is the right time to buy. Since I think there is a fair chance that the market will not do that great this year, I feel this is a good way to get my money in without taking on too much risk.
Here is a list of my monthly SPY buys: