Many Investors trade mutual
funds in either their regular trading account or their retirement
account. So we at Incometrader.com have decided to participate
in the fund race as well. Since all mutual funds are based against
the S&P 500 we too will use the S&P 500 as our benchmark.
Luckily for us the S&P 500 has a tracking stock that contains
a portion of all 500 hundred stocks in the S&P 500. This
stock has its own ticker symbol (SPY) just as all mutual funds
do and is diversified, just as mutual funds are, but it contains
a few major differences that benefit the owner over the use
of mutual funds.
| XXXXXXXXXXXXXXXXXXXXXX
|
SPY
Tracking Stock |
Mutual
Funds |
| Extremely
Diversified |
Yes |
Yes |
| Popular
Trading Vehicle |
Yes |
Yes |
| Track
the Entire Market with 1 Trade |
Yes |
Yes |
| Maintenance
Fees |
No |
Yes |
| Optionable |
Yes |
No |
| Short
Sales |
Yes |
No |
| Odd
Lots |
Yes |
No |
| Trade
During Market Hours |
Yes |
No |
| Low
Commissions and Fees |
Yes |
No |
| Instant
Order Execution |
Yes |
No |
| Earn
Dividends |
Yes |
No |
| Stop
Loss Orders Allowed |
Yes |
No |
| Pay
Someone To Manage Your Portfolio |
No |
Yes |
| Beat
the S&P 500 Index? |
This
is the S&P 500 Index |
No |
| Time
Consuming? |
No |
No |
Extremely Diversified: Mutual funds typically carry 100 stocks in their portfolio.
The SPY carries 500.
Popular Trading
Vehicle: An average
mutual fund might trade 1-5 million shares per day. The SPY
has an average daily volume of over 55 million shares per day.
Track the Entire Market with
1 Trade: The SPY is
a stock that tracks the Standard & Poors 500 Index. The
S&P 500 Index is the benchmark for the entire market.
Maintenance Fees:
The SPY is a stock and so all costs on the SPY are associated
with your commissions for buying and selling only. Mutual funds
typically carry a front and or back load and maintenance fees.
Optionable: The
stock is now optionable.
Short Sales: Mutual
funds cannot be sold short however the SPY can. So a trader
can make money in both up and down markets on the SPY. In addition,
the stock is exempt from the SEC's uptick rule for short selling.
The uptick rule prohibits short sales on a stock unless the
prior price change on the security was to a higher price.
Odd Lots: Unlike the SPY, some
ETFs can not be traded in odd lots. An odd lot is the amount
of a security that is less than the normal unit of trading for
that particular security. For stocks, any transaction less
than 100 shares is usually considered to be an odd lot. Since
some of the funds trade around $100 per share (putting the purchase
of a 100-share round lot at $10K, which is beyond the reach
of many small investors).
Trading During
Market Hours:
The SPY is a stock; therefore, during market hours it
trades just like other stocks. Mutual funds must wait until
the market is closed to tally up the funds performance.
Low Commissions
and Fees:
Your only fees associated with trading the SPY come from
your broker's commissions. If you trade online, commissions
can be as low as $8.00 per 1000 shares vs. 400-500 dollars on
mutual funds.
Instant Order
Execution: Again the
SPY is a stock so it can be bought or sold and confirmed within
seconds during normal market hours.
SPY trades actively pre-market
and post-market on various Electronic Communication Networks
(ECNs). An ECN connects major brokerages and individual
traders so that they can trade directly between themselves without
having to go through a middleman.
Earn Dividends:
If any of the S&P 500 stocks earn a dividend, the
monies are deposited into your account. Typically mutual fund
dividends are used to help pay the maintenance fees on the fund.
The SPY pays dividends on a semi-annual basis.
Stop Loss Orders
Allowed: Stop Loss Orders should be used with all securities and
are allowed for the SPY but not on mutual funds.
Pay Someone To
Manage Your Portfolio:
The majority of Mutual Funds in America have not outperformed
the S&P 500 Index over the past 10 years (Source Kipplingers
Magazine Jan 2001). So instead of paying a fund manager
to manage your money for you, you could have just
bought the S&P 500 Index and outperformed the majority of
all fund managers in America.
Beat the S&P
500 Index: The S&P 500 SPDR (SPY) ranks right up there with
the Nasdaq-100 Trust (QQQ) in both name recognition and trading
activity.
Time Consuming:
With Mutual Funds you turn your cash over to a fund manager
or you pick and trade yourself, in which case your time spent
will be choosing which fund to trade and how long to hold. With
the SPY your investment security is already picked (SPY). We
will show you what we feel are some great buy and sell signals.
In general, since most ETFs
trade with specialists at the American Stock Exchange (AMEX),
bid/ask spreads are fairly tight. However, only the most popular
ETFs, the S&P 500 SPDR (SPY), the Nasdaq-100 Trust (QQQ)
and the Dow Diamonds (DIA) consistently trade with any real
liquidity on the ECNs. The SPY is easy to trade and most any
online brokerage will have a self directed IRA that's easy to
set up. Since the majority of mutual funds track the S&P
500 and the SPY is the S&P 500 tracking stock, we here at
Incometrader.com decided to give buy sell and signals on the
stock. We give buy and sale signals on the stock for our readers
to trade themselves in their own IRA's or regular trading accounts.
We send out emails when it is time to enter and exit the trades
and then follow it up on the website. Our members can now trade
the SPY vs. a different mutual fund and hopefully outperform
the markets. We call it the IT Mutual Fund for marketing.
So far we have outperformed the market and the three largest
funds in the country.
