SPX vs SPY: What’s the Difference?

By / / Investing Basics
SPY vs SPX

What is the difference between SPX vs SPY? SPX is the ticker symbol for the S&P 500 stock market index, whereas SPY is an ETF (exchange traded fund) that tracks the S&P 500 (SPX) index. You can buy shares of SPY but since SPX is an index it cannot be bought and sold.

In this article
  1. What is a Stock Market Index?
  2. What is the Purpose of a Stock Market Index?
  3. What is the S&P 500 SPX Index? How is SPX Calculated?
  4. What is the SPY ETF? How are SPX and SPY Related?
  5. Why Invest in SPY?
  6. Wrapping Up
  7. Frequently Asked Questions

What is a Stock Market Index?

Before we take a look at SPX vs SPY we’ll need to cover the basics. First up, a quick definition: In simple terms, the US stock market refers to the 7,000 or so companies that are publicly traded in the US.

A stock market index is a hypothetical portfolio comprised of a subset of those companies, and they are usually related in some way. While there are thousands of stock market indexes, the three main indexes are as follows:

  • The S&P 500 index (Standard and Poor’s 500 – SPX) is comprised of the 500 publicly traded US companies with the highest market capitalization (market cap). Market capitalization is the number of shares the company has sold or issued multiplied by the value of each share.
  • The DJIA index (Dow Jones Industrial Average) is a list of the 30 “most important” industrial and financial US companies. There are no specific rules for how a company is included in the DJIA – inclusion is decided by a board of experts.
  • The Nasdaq Composite Index is a list of almost all companies that trade on the Nasdaq stock exchange – 3,240 companies as at Sep 2023. While the S&P 500 and DJIA only hold US companies, the Nasdaq covers US and international companies, with a strong leaning towards tech companies.
SPX Index-Sector Breakdown Oct 2023

What is the Purpose of a Stock Market Index?

Stock market indexes provide a way to easily understand the performance of the stock market, or sectors within the stock market. The S&P 500 Index is widely regarded as the best indicator of the performance of the entire US stock market. An index is sometimes based on the most important or relevant companies in the stock market (as is the case with the S&P 500), or within the sector being tracked.

What is the S&P 500 SPX Index? How is SPX Calculated?

Two important components of the SPX index are as follows:

  • The list of 500 companies that are included in the index. This list is reviewed quarterly by the S&P Dow Jones Indices committee and company weightings are updated if needed. Companies are also added or removed depending on performance and other factors.
  • The value of the index itself. For example, 4,224. The value increases and decreases many times per day based on the market cap of the companies that make up the index. The larger a company’s market capitalization, the more influence it has on the value of the index.

What is the SPY ETF? How are SPX and SPY Related?

SPY is the ticker symbol for the SPDR S&P 500 ETF Trust. It was established in 1993 and is managed by State Street Global Advisors. In the following simple breakdown of SPX vs SPY, you’ll see the similarities between the two.

SPX Breakdown

Although the SPX index is comprised of 500 companies, for the purposes of this explanation, we’ll look at the ‘weighting’ of just the 3 largest companies in the SPX index. At the time of writing:

  • Apple (APPL) accounts for 7.46% of the SPX index.
  • Microsoft (MSFT) accounts for 6.69% of the SPX index.
  • Amazon (AMZN) accounts for 2.72% of the SPX index.

SPY Breakdown

Now, let’s take a look at the SPY ETF. The total value of the SPY exchange traded fund is approximately $380B, meaning it owns $380 billion in shares of the largest 500 publicly traded companies. Of that $380B, the largest 3 companies in the fund are as follows:

  • Apple (AAPL) – the fund owns approx. $28B of Apple shares (about 7.46% of the fund).
  • Microsoft (MSFT) – the fund owns approx. $25B of Microsoft shares (about 6.69% of the fund).
  • Amazon (AMZN) – the fund owns approx. $10B of Amazon shares (about 2.72% of the fund).

You can see that the value of shares owned by the fund tracks the weighting of those companies in the index. So, when the value of the SPX increases or decreases, so does the value of the SPY fund.

Why Invest in SPY?

SPY Performance
SPY Performace

A key advantage of owning SPY is its very low expense ratio (the cost of managing the fund). SPY is considered a ‘passively’ managed fund. Since it tracks the S&P 500, the fund manager does not have to make decisions or undertake complex calculations to know when to buy and sell stocks within the fund. This results in very low management costs. Stocks within SPY are ‘rebalanced’ (bought and sold) every quarter, to match the SPX index.

You can buy and sell shares in SPY easily just like any other stock. You could use an online broker such as E-Trade, a face-to-face broking service such as Merrill Lynch, or an automated robo-advisor such as Betterment.

Investing in SPY, or any index fund has many other advantages:

  • Diversification: When you buy shares in the index fund you are instantly getting exposure to the performance of the largest 500 US traded companies.
  • Low Management Fees: Management fees are taken out of an ETF’s profit before they are passed onto you as the investor. Because SPY is a passively managed fund, it costs almost nothing for State Street to manage it. This is reflected in SPY’s expense ratio of 0.09%, which is one of the smallest expense ratios in the stock market.
  • Tax Benefits: Taxes incurred by an ETF are passed onto the investor, in the form of lower returns. Due to the nature of a passively managed fund, the fund pays less tax than an actively managed fund.
  • Performance: Looking at historic performance, 80-90% of actively managed funds have delivered less returns than the SPY over a 10 year period.
  • Dividends: SPY pays a dividend yield of around 1.6%.

Wrapping Up

When trying to understand SPX vs SPY, remember that SPX is the S&P 500 index, whereas SPY is an ETF that tracks the index. SPY and other index funds are a core staple of many investors’ portfolios. They are an easy and effective way of providing solid returns in the long term.

Frequently Asked Questions

Author

  • Marcus Anderson

    Marcus Anderson is a seasoned investment specialist and a key contributor to MoneyMaver. With a passion for making investing accessible to everyone, Marcus has dedicated his career to simplifying the world of finance and helping people make informed investment decisions. Marcus holds a degree in Finance from the University of Pennsylvania's Wharton School and has over a decade of experience in the financial sector. He started his career as an investment analyst for a major Wall Street firm, where he honed his skills in financial analysis and investment strategy.

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