The First ETF Ever Created Just Turned 33. Here Is Why It Is Still One of the Most Powerful Investment Available

Core Insights - The SPDR S&P 500 ETF Trust (SPY) has compounded at an annualized rate of 10.47% over 33 years, outperforming most active managers [2][13][16] - SPY remains a powerful investment due to its low-cost structure, market cap weighting, and liquidity, with approximately $651 billion in assets under management (AUM) [6][9] - Despite slightly higher fees and a cash drag from its unit investment trust structure, SPY is still considered one of the simplest and most effective long-term wealth-building tools [3][8][18] Performance and Structure - SPY has a 0.0945% expense ratio, which is higher than some newer competitors that charge between 0.02% to 0.03% [8] - The fund traded about 29 million shares in a single day with a 0.01% 30-day median bid-ask spread, showcasing its liquidity [7] - The S&P 500 index, which SPY tracks, is governed by rules regarding market capitalization, liquidity, and earnings consistency, making it more curated than many realize [10][11] Investment Strategy - The market cap-weighted structure of the S&P 500 allows for a self-cleansing mechanism where well-performing companies grow in weight while underperformers shrink or are removed [12] - Over a 33-year period, a $10,000 investment in SPY would have grown to over $271,240, despite experiencing a peak-to-trough drawdown of 55.2% during the 2008 financial crisis [13][14] - The SPIVA study indicates that 89.93% of large-cap funds underperformed the S&P 500 over a 15-year period, reinforcing the effectiveness of a low-cost index approach [16] Conclusion - While SPY is not without its drawbacks, such as higher fees and cash drag, it remains a highly effective long-term investment option [18] - Investors can enhance their portfolios by adding international equities or bonds for diversification, and strategies like covered calls can be layered on for additional income [19][20]