Three Justified Motives to Invest in this Index Fund and Maintain Ownership for an Entire Lifetime
When it comes to dominating the market, many investors gravitate towards an S&P 500 index tracker. This isn't a bad choice, but there are alternatives with a bit more nuance. Let's delve into why the S&P 500 index is such a powerful market barometer and why moving to the Invesco S&P 500 GARP ETF (SPGP 1.19%) might be a wiser long-term move.
Understanding the S&P 500 Index
The story of tracking market performance began with the Dow Jones Industrial Average (DJI 1.65%), a 30-stock index tipping the scales based on a company's stock price. That methodology, while clever in its day, had some issues, such as favoring high-priced stocks, creating an uneven impact on the index's performance.
Enter the S&P 500 index, which remedied those issues by weighing companies based on market cap – the larger companies have more impact on performance. And it expanded beyond the narrow scope of the Dow, creating a more diverse market tracking gauge with 500 stocks. No surprise the S&P 500 index quickly became the go-to measuring stick – even though the DJI and the S&P 500 tend to move in tandem over the long haul.
So, if you're thinking of a long-term investment vehicle, an S&P 500 index tracker is a smart pick. No matter if you choose a mutual fund, like the Vanguard 500 Index Fund, or an ETF, such as the SPDR S&P 500 ETF Trust (SPY 1.82%), you'll be in good shape. But could there be an even better option?
The Invesco S&P 500 GARP ETF
As the chart above shows, the Invesco S&P 500 GARP ETF has consistently outperformed the S&P 500 index in terms of share price performance and total return (including dividend reinvestment) over the long haul. That's no small feat and probably not something most actively managed funds can boast.
This ETF tracks the S&P 500 GARP Index, which serves up a more specialized mix of approximately 75 stocks selected from the larger pool of S&P 500 companies. The selection process is all about cherry-picking growth at a reasonable price (GARP) stocks – or identifying companies with strong growth potential and reasonable valuations.
The GARP screening method zeroes in on the top 500 companies, evaluating them based on three-year earnings per share growth and sales per share growth. Once the top 150 stocks emerge, they're further screened for quality and value, looking at financial leverage, return on equity, and price-to-earnings ratio. Only the 75 top-scoring stocks make it into the final index assembly line, with shares weighted by their growth scores.
If you're wondering about the recent performance of the Invesco S&P 500 GARP ETF, it's been struggling to keep pace with the broader S&P 500 index.
The Mirror of Wall Street
If you're deliberating between a lifetime investment vehicle, keep one crucial fact in mind: Stocks are like a pendulum, constantly swinging back and forth. With that in mind, there's no single index that will always be on top. The S&P 500 index is generally a great indicator of long-term market performance, but it shouldn't be your sole investing strategy.
Also, the S&P 500 index is a great foundation for exploring more targeted investments, like the Invesco S&P 500 GARP ETF. With its GARP focus, it delves into a distinct investment approach. But don't forget, no investment approach is a surefire winner all the time. However, sometimes the best investing moments come when an approach is out of favor, like the GARP strategy now. If you're thinking ten years, not just days, you might consider adding the Invesco S&P 500 GARP ETF to your portfolio before the GARP approach's popularity swings back up again.
[1] Enrichment Data: The S&P 500 index is a popular benchmark for gauging the overall performance of the U.S. stock market. It aims to provide equality of representation among its constituent stocks and is widely followed by investors, financial analysts, and market commentators.
[2] Enrichment Data: The Invesco S&P 500 GARP ETF (Ticker: SPGP) is a passively managed exchange-traded fund (ETF) introduced in 2012, allowing investors to acquire shares of the fund that mirror the performance of the S&P 500 GARP Index – a subset of the S&P 500 index. The SPGP fund employs a Growth at a Reasonable Price (GARP) strategy, aiming to provide investors with access to the performance of companies demonstrating both strong growth potential and sound underlying fundamentals.
[3] Enrichment Data: Over the period 2011-2021, the Invesco S&P 500 GARP ETF performed significantly better than the benchmark S&P 500 index, providing investors with higher returns.
[4] Enrichment Data: While the Invesco S&P 500 GARP ETF is an attractive investment option subsequently, it is also crucial to consider the fund's characteristics and investment objectives, financial risk tolerance, and overall investment strategy before making an investment decision.
[5] Enrichment Data: The S&P 500 GARP Index comprises securities exhibiting both strong growth potential and reasonable valuations. The index is constructed and maintained by S&P Dow Jones Indices LLC, a leading provider of financial market indices.
Investing in the long term, you might consider the Invesco S&P 500 GARP ETF as an alternate to an S&P 500 index tracker. This ETF focuses on growth at a reasonable price (GARP) stocks, selecting companies with strong growth potential and reasonable valuations from the larger pool of S&P 500 companies.
The performance of the S&P 500 index tracker and the Invesco S&P 500 GARP ETF should be evaluated as part of a diverse investment strategy, considering their strengths and weaknesses over different market conditions.
