The first ETF ever created was technically Canadian. That distinction goes to the iShares S&P/TSX 60 Index ETF (TSX: XIU), which traces its roots back to the Toronto 35 Index Participation Units in 1990. But for most investors, especially in the U.S., the ETF story really begins with the State Street SPDR S&P 500 ETF Trust (NYSEARCA: SPY).
Launched on January 22, 1993, SPY is now more than 33 years old and still going strong. It’s no longer the largest ETF , but it remains a titan with roughly $651 billion in AUM. And in terms of liquidity, it’s in a league of its own.
According to State Street Investment Management, as of March 23, the fund traded about 29 million shares in a single day, with an incredibly tight 0.01% 30-day median bid-ask spread. It is also one of the few ETFs that offers zero-day-to-expiry (0DTE) options. That kind of trading efficiency is hard to replicate.
Now, SPY isn’t perfect. Its 0.0945% expense ratio is low, but newer competitors have pushed fees down even further into the 0.02% to 0.03% range. It also uses a unit investment trust structure, which comes with a small drawback. Between its quarterly distribution dates, SPY cannot reinvest dividends from the underlying S&P 500 companies. Instead, it holds that cash, which creates a modest drag on performance over time.
Even so, if you already own SPY, there’s little reason to sell just to chase a slightly cheaper alternative and trigger capital gains taxes. Despite its quirks, SPY still offers something that few investments can match. It remains one of the simplest, most efficient, and most powerful ways to build long-term wealth.
Robustness of the Underlying Index
A lot of investors think the S&P 500 is simply a list of the 500 largest companies in the U.S. That’s an oversimplification. In reality, the index is governed by a set of rules around market capitalization, liquidity, and earnings consistency.
Companies generally need to be profitable, widely traded, and of sufficient size to qualify. On top of that, there’s a committee that makes final decisions on additions and removals, which adds a layer of discretion. That makes the index more curated than many realize.
The biggest advantage, though, is its market cap-weighted structure. Each company’s weight is determined by its share price multiplied by its free float shares outstanding. Over time, this creates a self-cleansing mechanism. Companies that perform well naturally grow into larger positions, while those that struggle shrink in importance or get removed entirely.
It’s a built-in momentum effect, but without the higher costs typically associated with dedicated momentum strategies. Over long periods, this has been incredibly effective. According to data from testfolio.io, over a 33-year period with dividends reinvested and before taxes, SPY compounded at 10.47% annually. A $10,000 investment would have grown to more than $271,240.
Of course, that return didn’t come without risk. Annualized volatility up or down came in at 18.6%, and during the 2008 financial crisis, the fund experienced a peak-to-trough drawdown of 55.2%. But for investors who held through those periods, the long-term outcome was still highly favorable.
What SPIVA Says
That backtest looks strong, but it becomes even more meaningful when compared to alternatives. There’s no shortage of actively managed funds that attempt to outperform the S&P 500 through stock picking. In theory, skilled managers should be able to add value.
In practice, most don’t. The S&P Indices Versus Active (SPIVA) study tracks how active funds perform against their benchmarks. As of December 31, 2025, the data shows that over a 15-year period, 89.93% of large-cap funds underperformed the S&P 500.
That leaves just 10.07% that managed to outperform over that timeframe. Shorter periods can be more variable, but over the long term, the odds are clear. Most active managers fail to beat a simple, low-cost index approach.
The Final Word on SPY
Is SPY perfect? No. There are valid reasons to consider alternatives, including its slightly higher expense ratio and the small cash drag from its unit investment trust structure.
But those drawbacks are relatively minor in the bigger picture. If you do end up investing in SPY, you’re still owning one of the most effective long-term wealth-building tools available.
You can also build around it. Adding international equities can improve diversification. Including bonds can help manage volatility if your risk tolerance is lower or your time horizon is shorter. And if you own 100 shares, you can even layer on strategies like covered calls to generate additional income, with the trade-off of capping some upside.
That flexibility is part of what makes SPY so powerful. Even after more than three decades, it remains one of the most widely traded and widely held ETFs in the world for a reason.
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