The information I'm using is from SSgA's web page for SPY ( and iShares' web page for IVV ( us./product.).Īccording to SSgA and iShares, the expense ratios are: It's now February 2010, and I looked again at these ETFs to see whether the chapter needed revision. That way you know exactly what you're getting. If an investor wanted to overweight tech, a better way to do it would be to own a broad market ETF like $ SPY or $ IVV, and to increase allocation to tech using a pure tech ETF, like $ VGT. But was that a choice you actively made, or was it an accident? Going forward, do you want to devote such a large percentage of your portfolio to $ AAPL? In retrospect, that turned out to be great as $ AAPL massively outperformed $ SPY, $ QQQ and $ DIA over the last 10 years. So if your portfolio was dominated by $ QQQ and $ DIA, you would have had an outsized position in $ AAPL, perhaps without realizing it. If you take that approach, QQQ and $ DIA aren't great instruments because they are an arbitrary mix of stocks which makes it hard for you to manage your overall asset allocation.įor example, $ AAPL is in the top 10 holdings of both $ DIA and $ QQQ. I've suggested a different approach in this guide, that investors should care about the characteristics of their overall portfolio by focusing on their asset allocation, rather than simply looking for stocks or ETFs that they think will perform best. If your approach to investing is to pick stocks and ETFs which you think will perform well, with no attention paid to the risk characteristics of your overall portfolio, then they were good choices. You're right that $ QQQ and $ DIA performed well over the last decade. Moreover, many NASDAQ 100 stocks also appear in the S&P 500, so if you hold both QQQ and IVV (or SPY) you have significant overlap in your Investments Thank you for your comment. ![]() As a result, if you want to make a concentrated sector investment in technology stocks you’re better off buying the Technology Sector ETF, ticker ( XLK ). ![]() ![]() In fact, it excludes some of the largest US technology stocks, such as IBM and HPQ, which are traded on the New York Stock Exchange. It’s dominated by large capitalization technology stocks, but it’s not a pure technology index. While broader than the Dow, the NASDAQ 100 is a slightly unusual index that makes its popularity baffling. “Qs” or "Qubes" ( QQQ) are shares in an exchange traded fund tracking the top 100 stocks in the NASDAQ index, known as The NASDAQ 100. Three blow-ups in the Dow would mean that 10% of your large cap portfolio gets hit. What is clear, however, is that the Dow Industrials is a far too narrow index. A (perhaps more suitable) alternative would be an ETF that tracks the Russell 1000 index, as it’s broader than the S&P 500. In place of the Dow, we chose an ETF that tracks the S&P 500. ![]() But the problem with the Dow is that it consists of only 30 stocks, so “Diamonds” fail to give us the diversification we require. “Diamonds” ( DIA) are shares of the Dow Jones Industrial Average index fund. Remember also that exchange traded funds cannot trade at a discount or premium to the underlying value of the stocks they track without inviting an institution to close the gap by exchanging the ETF for the underlying securities or visa versa, so lower liquidity should not impact the market value of IVV. But for most investors, the increased liquidity of SPYs over IVVs is inconsequential, and you’re hoping to hold your portfolio for longer than a quick trade. Traders tend to prefer SPYs due to their greater daily trading volume, and the fact that their slightly higher expenses don’t matter if they are held for only a short time. Since our goal is to build a portfolio with the lowest possible annual expenses, we chose IVVs over SPYs. “Spiders” ( SPY) are shares in an S&P 500 exchange traded index fund run by State Street, and are identical to an S&P 500 index ETF run by Barclays ( IVV) but with a slightly higher annual expense ratio. If you look at the Core ETF Portfolio and the Low Maintenance ETF Portfolio which I suggest in The ETF Investing Guide, you'll notice that the three most popular ETFs - known as “Spiders” (ticker ( SPY)), “Diamonds” (ticker ( DIA)) and “Qs” or "Qubes" (ticker ( QQQ)) - are not included.
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