There is an investing adage that says since you can’t beat the market you may as well buy it. There is good reason to adopt it. 

For 14 consecutive years, the majority of actively-managed large-cap stock funds have lost to the S&P 500. It is hard to outperform the benchmark index, even when you have the best computers, algorithms, and access to research data.

24/7 Wall St. Key Points:

• The S&P 500 is up 25% year-to-date, but a small, handful of stocks account for most of the gains, pushing the index to valuations well-above its historical average.
• The SPDR S&P 500 ETF Trust (SPY) is the first and largest ETF that mimics the performance of the benchmark index.
• Buying the ETF is the “plain vanilla” investment and is often the best option for most investors.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

The best way for investors to mimic the market’s returns is by buying the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), the largest and oldest exchange-traded fund (ETF).

What is the SPDR S&P 500 ETF Trust?

As most investors understand, an exchange-traded fund (ETF) is an investment vehicle that pools various securities, allowing investors to buy shares that represent a portion of the fund. The SPDR S&P 500 ETF Trust, known as SPY, was created and is run by State Street Global Advisors. It was the first ETF ever and it tracks the performance of the S&P 500 Index, comprising the 500 largest U.S. companies.

These are the top 10 holdings of the ETF showing their weighting in the fund and their market capitalization:

Company Name	Ticker	% of ETF	Market Capitalization
Apple	AAPL	7.12%	$3.495 trillion
Nvidia	NVDA	6.77%	$3.364 trillion
Microsoft	MSFT	6.26%	$3.131 trillion
Amazon	AMZN	3.61%	$2.060 trillion
Meta Platforms	META	2.57%	$1.401 trillion
Alphabet (Class B)	GOOGL	2.08%	$1.992 trillion
Alphabet (Class A)	GOOG	1.72%	$1.995 trillion
Berkshire Hathaway (Class B)	BRK-B	1.71%	$1.037 trillion
Broadcom	AVGO	1.64%	$768 billion
Tesla	TSLA	1.44%	$1.175 trillion

Data compiled by Crestmont Research shows that between 1900 through the end of 2023, the SPDR ETF would have enjoyed 104 consecutive years of positive returns. While the S&P 500 wasn’t created until 1957, Cresmont’s analysts back-tested the ETF using rolling 20-year total returns, including dividends paid. They discovered that as long as an investor didn’t sell, he would never experience a single year of negative returns.

That’s why many will advise on taking the “plain vanilla” approach to investing: simply buy the SPDR S&P 500 ETF Trust and calling it a day. 

Only a handful of stocks are doing the heavy lifting

The S&P 500 is enjoying outstanding returns so far this year. The index is up over 25% and since the latest bull market rally started in late 2022, it has gained more than 66%. Many feel it can go even higher.

The economy is good, relatively speaking, even though inflation is elevated and climbing once more. Interest rates are still high, too. But investors should prepare for the market to fall, and expect it to happen sooner rather than later.

The reason behind this forecast is that not all is what it seems. We have all heard of the Magnificent 7 stocks — Nvidia, Microsoft, Meta, Apple, Alphabet, Amazon, and Tesla — and they are responsible for most of the market’s gains.

As of the end of October, those seven juggernauts make up one-third of the S&P 500’s market cap, but are responsible for 50% of its gains this year, according to Bank of America analysts.

That means you have a very small group of companies primarily responsible for the rally. It suggests the vast majority of stocks aren’t performing nearly as well, with many even being deep in the red. In fact, fully one-quarter of all stocks included in the S&P 500 are in negative territory. 

Of those stocks in positive territory, 20% are trading below the index’s historical average and over half are below its year-to-date performance.

Is the SPDR S&P 500 ETF Trust a buy?

The market is trading at historically high valuations relative to its historical average. Where it typically trades at a P/E of round 19 or 20, today it goes for over 30. And the Magnificent 7 are mostly trading well above their five-year average on a trailing and forward basis. Expecting these stocks to maintain this momentum is a mistake. Any signs that the economy is stumbling could send them tumbling.

So that makes it a hard no on buying the SPDR S&P 500 ETF Trust, right? No. First, no one knows when the market will actually fall. It’s why shorting stocks is so dangerous. As famed economist John Maynard Keynes once said, “Markets can remain irrational longer than you can remain solvent.”

Second, bear markets are short-lived events. They tend to be measured in months whereas bull markets go on for years. And every single bear market has been followed by a bull market that wiped away all the losses experienced and gone on to new highs.

For the vast majority of investors, simply buying the SPDR S&P 500 ETF regularly over time is the best investment they can make. Even if the ETF tumbles, you can expect it will eventually recover and go on to bigger gains. 

Buying through the downturn ensures you’re buying more shares and it will enhance your portfolio’s returns years down the line.

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