The Single Best Exchange-Traded Fund: SPY

An exchange-traded fund, also knows as an ETF, consists of a fund that holds multiple stocks. This fund is then divided into individual shares and sold on a stock exchange, just as an ordinary stock for an individual company. ETFs are becoming a popular way for investors to diversify their assets and pursue retirement investing in a simple, one-stop shopping way.

The ETF symbolized by SPY trades on the New York Stock Exchange. SPY closely mirrors the S&P 500 Index, and each share of SPY sells for roughly 10% of the value of the S&P 500 Index at any given time. The S&P 500 Index grows at an average rate of roughly 8 percent or 9 percent annually, which means that a fund mirroring the index should likewise increase by several percentage points per year, on average.

If you still have at least 10 years until your retirement, then the majority of your investment should be in higher-risk or growth stocks instead of more conservative investments such as bonds. This is because the longer investment time frame allows your portfolio to recover from losses and to potentially capitalize on the higher gains that higher-risk stocks can produce in the long run. As you get closer to retirement, you should put a higher percentage of your investments into more conservative funds, but the average investor with several years until retirement should put 95 to 100 percent into stocks.

Because the S&P 500 Index consists of companies from a variety of industries, the SPY ETF is already diversified due to the various holdings that make up the fund. Every share of the SPY ETF consists of a batch of tiny fractions of stock shares from the companies that are listed on the S&P 500 Index. Because of the inherent diversification in the SPY ETF, it is not an overstatement to say that investing your entire retirement portfolio solely in SPY, for the sake of simplicity and ease, is a more than adequate way to make sure that your retirement portfolio is properly diversified.

The down side to ETFs in general, and to SPY in particular, is that brokers generally charge a fee per trade. This means that every time you purchase a quantity of SPY shares you will be charged a fee, which can easily take a bit out of the gains your investments make in the long run. Therefore, it is recommended that you purchase ETFs in the largest quantities possible, perhaps every few months, so that you minimize the trading fees. Although investing a portion of your income in ETFs monthly allows you to dollar cost average your investments, the monthly trading fees are too big of a trade off when you could minimize the fees by investing every few months or every year.

In conclusion, a very simple way to invest your retirement money is to invest all your retirement savings in the SPY ETF. The find is inherently diversified due to the fact that the fund mirrors the S&P 500 Index, and the fund should grow several percentage points per year, on average. The only thing to keep in mind is that you should minimize trading fees by purchasing more shares of SPY less frequently. SPY is a simple and effective way to plan for your retirement through investing with a minimum of hassle and stress.