I recently compared the SPDR S&Pa couple of index funds (SPY and IVV) to the S&P 500 Index (GSPC) and noticed that over the past 3 years the index funds have outperformed the underlying index. GSPC has gained 40.2%, SPY has gone up 48.4%, and IVV has increased 48.7%. Since I can buy an index fund and forget about it, my goal when buying individual companies is to do better than the market
I inadvertently posted before I was done ...I recently compared the SPDR S&P 500 ETF (SPY) and the iShares Core S&P 500 ETF (IVV) to the S&P 500 Index (GSPC) and noticed that over the past 3 years the index funds have outperformed the underlying index. GSPC has gained 40.2%, SPY has gone up 48.4%, and IVV has increased 48.7%. Can anyone explain how this happens? I would think there would be a nearly perfect correlation.Secondly, since buying an ETF is a no-brainer, wouldn't it be more honest to compare my investment returns against the ETFs instead of the index?
ETFs that track the index don't pay divs. As for "honesty", that's a matter of identifying goals and setting benchmarks appropriately, not a matter of truth or falsity.
Opps, I meant to say that it is the index that doesn't pay divs. Hence, the typical diff between the underlying and the derivatives that track it.
When doing the comparison, make sure you understand if the dividends are included in the calculation.As always, you are not surprised if the figures differ a little bit. It depends on exactly how calculated. And even are you comparing closing daily prices? Weekly prices? etc etcThis emphasizes the risk of making decisions based on small differences. Much data can be calculated to 7 digits, but in reality has one significant digit. Hence, 6.6 is the same as 6.9.
Secondly, since buying an ETF is a no-brainer, wouldn't it be more honest to compare my investment returns against the ETFs instead of the index?I track my returns against the two S&P index funds that I own (IVV and VOO)because it allows me to see my decisions compared to a basic default that doesn't require research. With any funds available to invest, I could either purchase shares in individual companies or in an index fund, so it helps to see which choice was the better option.Also, the returns for the index funds include the increase in value due to dividends being reinvested as do the returns for individual companies, so it is more accurate than the S&P number.All the best,Raymond
That's not accurate. I won shares of SPY, IVV, and DVY and all three of them track indexes and all three of them pay dividends.
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