The SPY is an electronically traded fund (ETF) that tracks the value of the S&P 500. These are the top 500 companies by market cap in the U.S. As such the value of the SPY directly correlates to the value of the U.S economy.
This article demonstrates that yes, the SPY can continue to grow forever. Although there will be times that it will drop in value, over a long term view the SPY will continue to grow.
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Without wasting any time, let’s jump right into the article; can the SPY continue to grow forever?
What Is The SPY?
The SPY is State Street Global Advisors (SPDR) take on the S&P 500. The SPY is essentially an ETF that tracks the top 500 companies in the U.S by market cap. Every quarter the SPY rebalances itself to match the current market cap balance of the S&P 500. (Source)
The S&P 500 on the other hand is an index. An index is simply a collection of stocks that seek to measure the overall growth of a collection of securities. An index can be built around any collection of stocks. For example, you could build an index that tracks all meme stocks on the market by social media mention.
The S&P 500 was formed in 1923 when the publishing company Poor’s and the Standard Statistics Company created the weekly index fund the S&P 500. Initially the S&P only consisted of 233 companies but as the U.S market grew so did the amount of companies. (Source)
Now the SPY consists of the top 500 companies in the U.S, weighted by market cap. These are companies such as Google, Facebook/Meta, Amazon, and others. Here is a graph of the current top holdings of SPY.
So, the SPY is simply an investment vehicle that tracks the S&P 500 index. It allows investors like you and I to invest in the overall growth of the U.S market. Since the U.S is the most profitable investment economy in the world everyone owns a portion of the S&P 500 in their portfolio.
You might not own the SPY but there are several other large ETF’s that do the same thing that the SPY does (with minor differences). VTI is a great alternative to the SPY and carries less risk at the sacrifice of less reward.
So, can the SPY continue to grow forever? If we are asking this question we are asking instead “can the U.S economy continue to grow forever?” This as you might expect is a very large question.
The simple answer is yes. For the foreseeable future.
Can The SPY Continue To Grow Forever?
All good things must end. However for the foreseeable future the SPY is not going to stop growing.
There are two main reasons for this. First, The SPY is based around the U.S market which is the most innovative market in the world. The reason that the U.S market has exploded in value time and time again is because of the inherent economic model present in the U.S economy.
(for those interested in exploring more about how the U.S economy forces innovation and thus rapid economic growth check out this amazing book Technology and Employment. Innovation and Growth in the U.S Economy by Richard Cyert) (Click here)
Second, The overall world economy is going to continue to grow over the next century. This pattern started with the rise of industrialism in the western world with the advent of the industrial revolution in Britain during the 18th century. Simply put, the whole world is going to become wealthier over the next century, including the U.S economy. (here is a great economic history article on the world’s economy over the past 3 centuries by Jack A. Goldstone) (Click here)
Here is a chart demonstrating how much the world’s economy has continued to grow over the past 3 centuries.
As we can see the world has become wealthier over time. This includes the U.S economy, and thus the SPY. For the past 100 years the SPY has grown at a steady rate of 9.25% year over year. This includes outlier years such as the great depression, 2008 recession, 1990’s flash crash, and most recently the 2020 pandemic.
Yes, The SPY Will Continue To Grow
At least for the foreseeable future the SPY has no reason to continue to stop growing. For the SPY to stop growing we would need to see a catastrophic event that halts the entirety of the U.S economy.
This would be a huge event that decimated the U.S economy. Revolution, war, disease, famine, or mass migration would cause the SPY to stagnate and eventually fall in price. Such an event has not happened in the history of the United States. As such I don’t see any reason why the SPY could not grow for another century well past our lifetimes and perhaps even our children’s.
But what about forever? This is where the question begins to become more unclear.
Will the U.S stand forever? Will the Human race continue to innovate and become more profitable? These are existential questions that nobody can answer with 100% confidence.
For the purposes of this article however, we can safely say that the SPY will continue doing what it does best…growing at 9.25% year over year.
There you have it, an article that answers the question “can the spy continue to grow forever?”
Nobody can say for certain if the SPY will continue to grow forever. However for the foreseeable future it’s quite certain that the U.S economy will continue to chug along and as such the SPY will continue to grow at a yearly rate of 9.25% per year.
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Until next time, I wish you the best of luck in your investment journey.