Index funds or ETFs
the case of the S&P 500 for individual investors
DOI:
https://doi.org/10.61190/fsr.v18i3.4947Keywords:
ETFs, S&P 500, Fees and expenses, Standard and Poor's depository receiptsAbstract
We investigate alternative S&P 500 indexing strategies for individual investors using S&P 500 index funds and the Standard and Poor's depository receipt (SPDR). This investigation is important becuase while SPDRs have lower advertised annual expenses, investors in SPDRs face bid-ask spreads and commissions. We computer average spreads of SPDRs using transaction-by-transaction data, present a model to illustrate how investors can compare alternative index investments, and illustrate the results under several scenarios. We conclude by comparing risk-adjusted returns of the alternatives to ensure that undisclosed trading costs do not alter the choice.
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