Online Brokers Just like Other Securities
The American Stock Exchange, which is now merged with Nasdaq, offers a fairly extensive array of index shares, which combine all the opportunities of indexes with the advantages of stock trading. The best-known among these index shares are “Spiders,” technically called Standard & Poor’s Depositary Receipts, or SPDRs, and “Diamonds,” or the Dow Jones index shares. The index shares can be bought and sold through regular, discount, or online brokers just like other securities.
Like an index fund, the shares mimic the markets they represent. The Spider, for example, is a unit investment trust that holds shares of all the companies in the S&P 500 and closely tracks the price performance and dividend yield of the index.
Slight misalignments occur when the trust must be rebalanced and must adjust for an inflow of dividends. Diamonds are set up the same way, only they use the 30 stocks of the Dow Jones Industrial Average. The ticker symbol for Spiders is SPY, and the symbol for Diamonds is DIA. Although an investor pays the typical brokerage fee when buying or selling, neither of these instruments involves a sales load. Unless a stock is added to or deleted from an index, generally there is little trading within a fund, so capital gains taxes are kept at a minimum.
