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Understanding Vehicular Pros and Cons
By Dr. David Edward Marcinko MBA CMP™
www.CertifiedMedicalPlanner.org
[Publisher-in-Chief]
It is possible to buy or sell during a trading day with SPDRs, just as one would with a common stock, and, accordingly, the trading price may be set anytime during the day. This could prove valuable in a sudden market downturn. Also, they may be traded using the same types of orders used for stocks (market, limit, at the close, and at the opening) and sold short, even on a downtick.
However, dividend reinvestment is provided by only a few brokers. Since SPDRs represent passive equity portfolios, they tend to be fully invested in the stock market, which removes a significant drag on performance; their expense ratios are significantly below that of stock mutual funds in general, and below many index mutual funds; and they have virtually no turnover and accordingly, minimal capital gains.
Index Mutual Funds
Index funds, on the other hand, may only be purchased or redeemed at the net asset value (NAV) at the end of the trading day. Short sales are not possible; however, dividend reinvestment is available.
The Disadvantages
On the down side, SPDRs are sold like common stocks and, therefore, incur brokerage commissions, but this can be minimized by using discount brokers. SPDRs have been so successful that both the American and New York Stock Exchanges launched internationally indexed products modeled after SPDRs in the spring of 1996. They are termed World Equity Benchmark Shares (WEBS) and Country Baskets.
Note: “Index Stocks: An Introduction to SPDRs—S&P 500 Depository Receipts,” Robert T. Kleiman, in his article, AAII Journal, January 1997, pp. 23–26, American Association of Individual Investors [312] 280-0170).
Conclusion
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Filed under: CMP Program, Investing, Portfolio Management | Tagged: CMP, david marcinko, Index Funds, Mutual Funds, SPDRs, www.certifiedmedicalplanner.com | 4 Comments »
