Nathan Most and Steven Bloom, two executives at the American Stock Exchange, came up with the idea for SPY stock, as it is commonly known on trading floors and in retirement accounts alike. They felt that regular investors should have an easier way to enter the market.

Their concept was almost ridiculously simple: create a fund that contains all 500 S&P 500 stocks, allow anyone to purchase a portion of it, much like a share of stock, and charge virtually nothing for the privilege.

The current expense ratio is only 0.0945%. That figure is so tiny that it hardly registers for the majority of people. Given the scale involved, it adds up significantly for the fund’s management company, State Street Global Advisors.

Furthermore, it is truly difficult to understand the scale. The first ETF in history to manage more than $500 billion in assets was SPY in February 2024. Wall Street didn’t celebrate that milestone with much fanfare because the financial industry usually absorbs big numbers without blinking, but it has real significance. It means that millions of investors—from individual savers in their kitchens to pension funds in the Midwest—have quietly concluded that it is wiser to wager on all of America at once rather than just any one area of it.

The fund’s legal architecture is truly peculiar, so it’s worth taking a moment to consider it. Because SPY is set up as a unit investment trust, it lacks a board of directors to consider options and a portfolio manager to make decisions. All it does is store the index. Additionally, because of its UIT structure, the trust is legally linked to the lives of eleven specific Americans, the majority of whom were part of the original American Stock Exchange team.

On January 22, 2118, or twenty years after the last of those eleven individuals dies, whichever comes first, SPY will be abolished. Linking the largest ETF in the world to human lifespans has an almost poetic quality.

Over the course of three decades, the performance record tells a convoluted but ultimately comforting tale. In 1995, for example, SPY returned 37.23%, while in 2001, as the dot-com collapse spread throughout the economy, it dropped 26.60%. The financial crisis of 2008 was severe. At times, 2020 felt like a complete collapse due to the pandemic, but by year’s end, SPY had delivered almost 15%. It had increased by nearly 30% by 2021. An additional 24.35% by 2024. The doubters are usually silenced by the long-arc math.

As more recent, less expensive competitors flood the ETF market, it’s still unclear if SPY will maintain its hegemony. Vanguard’s VOO fees are even lower. A few investors have already switched. However, SPY has a thirty-year track record that is deeply ingrained in the practices and portfolios of institutional and retail investors worldwide, something that more recent funds just cannot match. For many people, moving away from SPY would be like taking down a load-bearing wall.

As this fund ages in real time, it seems that its founders realized something that most financial innovators overlook: simplicity, when maintained consistently, tends to prevail. Alpha was not promised by Most or Bloom. The index was promised. Additionally, the index has done the majority of the talking over time.

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