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How Index ETFs Top Rivals

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Over 15 years ago, in 1993, the S&P Depositary Receipts (SPY) went up against a who’s who of fund heavyweights; Fidelity Magellan, Legg Mason Partners Fundamental Value, MFS Growth Stock, Oppenheimer Equity, Putnam Investors, T. Rowe Price Blue Chip Growth and 57 others. It outperformed them all.

The S&P 500 SPDRs currently has a 15-year average annual return of 6.79 percent. Out of 3,260 mutual funds that have been around for 15 years or more, SPY outperformed 2,626. This places the SPY in the top performing 20 percent of funds for the last 15 years. What’s SPY’s secret? Consistency, diversification and low fees.

What you see is what you get. SPY will always contain the 500 stocks of the S&P 500. You don’t have to wait for an outdated quarterly report before knowing what you own. You don’t have to worry about your investment manager or investment strategy changing on you. And you don’t have to worry about paying celebrity fund managers that tend to underperform their benchmark anyway. Why pay “Mercedes money if you don’t get Mercedes performance?”

The S&P Depositary Receipts are the oldest but not the only broad market index ETFs. The Dow Jones Diamonds (DIA) tracks the Dow Jones which zeros in on only 30 blue chip companies. Other broader measures of domestic stocks offer more complete exposure. These benchmarks include the DJ Wilshire 5000 (TMW), the MSCI US Broad Market Index (VTI) and the Russell 3000 (IWV).

If you are a market timer, the above ETFs may not be your number one choice. If on the other hand you are a serious long-term investor there is no need to look further. Any of these fine ETFs will provide you broad, consistent market exposure at rock bottom prices. Since the 2008 tax-year is almost over, you should probably know that SPY performance ranking looks even better when considering the after-tax performance.

Ron DeLegge is the San Diego-based editor of