The two most common strategies for rebalancing are: Periodic rebalancing: You rebalance at fixed intervals, for instance every 6 months, or every year... Threshold-based rebalancing: You rebalance when one of the ETFs in your portfolio goes out of balance by a certain percentage, for instance 5%.
The frequency of index rebalancing depends on the index in question. Some indexes, like the S&P 500, are rebalanced quarterly, while others are adjusted semiannually or annually. 4 Specialized or thematic indexes might have unique rebalancing schedules.
As mentioned earlier, the SPY ETF aims to track the performance of the S&P 500 index which comprises of 500 large cap stocks in the US. The list is subject to change and every year around 20 to 25 stocks will leave the index and are replaced by other stocks.
Equal weighted indices also require more frequent rebalancing (the process of changing the weights of individual constituents to adhere closely to its objective), as the weight of each issuer will drift based on the performance of each security. This higher turnover would result in higher transaction costs.
S&P, on the other hand, has criteria for what companies are included, not included, added to, deleted from, etc. The index rebalances quarterly. It is NOT as simple as just the "top 500 companies." After all, there are currently 503 constituents in the index. Turnover for the index is typically very low.
The QQQ is rebalanced quarterly and reconstituted annually to track the Nasdaq 100 index. It is important to remember that some of the companies people associate with technology are generally classified in other sectors.
In the past year, QQQ returned a total of 24.57%, which is slightly higher than SPY's 23.53% return. Over the past 10 years, QQQ has had annualized average returns of 18.38% , compared to 13.08% for SPY. These numbers are adjusted for stock splits and include dividends.
Once you have purchased shares of the SPY ETF, you can hold them for as long as you want, and you can sell them when you are ready.
The historical average yearly return of the S&P 500 is 13.316% over the last 10 years, as of the end of December 2024. This assumes dividends are reinvested. Adjusted for inflation, the 10-year average stock market return (including dividends) is 10.021%.
If you have a lower risk tolerance or are approaching retirement, relying solely on the S&P 500 could lead to uncomfortable swings in your portfolio value. Over time, this volatility can cause issues both emotionally and mathematically. It can be stressful to see large swings in your investments.
Invesco QQQ Trust (QQQ)
The Invesco QQQ Trust is a go-to ETF that tracks the Nasdaq-100 Index. It's outperformed the S&P 500 in seven out of the last 10 years, all for a reasonable 0.2% expense ratio. It slightly trails the S&P's one-year return, but only slightly, and it thrashed the S&P in full-year 2023.
Market corrections happen almost every year.
Since the early 1980s, there's been a greater than 5% drawdown in the S&P 500 Index in every year but two (1995 and 2017).
It's a quarterly rebalance, typically on the 3rd Friday of the last month of the quarter. Rebalances happen at the close time, so 4pm Eastern.
Long-Term Holding of Leveraged ETFs
Leveraged ETFs are primarily used for short-term trading opportunities. Investors usually hold these funds for a day or two, sometimes up to 10-14 days on the longer side. In other words, these leveraged ETFs are not intended to be held for months or years on end.
The Nasdaq-100 is rebalanced four times a year; however, the annual reconstitution, where stocks are added or deleted, happens only in December.
Here's how much you would have now if you invested in the S&P 500 20 years ago, based on varying starting amounts: $1,000 would grow to $2,533. $5,000 would grow to $12,665. $10,000 would grow to $25,331.
SPY has an expense ratio of 0.09%, which, while low, is still higher than that of VOO,'s 0.03%, one of the lowest expense ratios for S&P 500 ETFs. This makes VOO more cost-effective for long-term investors, as expense ratio differences compound over time and impact returns.
What are the risks of the SPY ETF? While SPY is a cost-effective and highly liquid investment option for investors, it's also subject to the same risks as any other investment in the stock market, including market volatility, and economic and geopolitical risks.
Average Return
In the past year, QQQ returned a total of 25.74%, which is slightly higher than VOO's 24.33% return. Over the past 10 years, QQQ has had annualized average returns of 18.26% , compared to 13.04% for VOO. These numbers are adjusted for stock splits and include dividends.
Index Top Holdings as of Jan 10 2025
Apple Inc. Amazon.com Inc. Tesla Inc. Broadcom Inc.
As of the end of 2024, QQQ had generated an annualized three-year return of 9.5%, an excellent annualized five-year return of 20.0%, and an impressive annualized 10-year return of 18.3%. For comparison, QQQ has outperformed VOO over these three periods.
Who owns SPY? SPY is owned by its investors — the shareholders of the fund. When you buy shares of SPY, you become an owner of the fund and are entitled to a share of the fund's assets and earnings.