How ETFs Went From Odd Idea to Portfolio Staple
The ETF sits in millions of portfolios like it was always there — but how did a fund idea once mocked as folly become the workhorse of modern investing? The road runs from a 1924 Boston trust to a 1993 spider, with detours through Toronto and a few spectacular flops.
An exchange-traded fund, remember, is a basket of stocks, bonds, or other assets that trades all day like a single stock.
1. Meet the Great-Grandparent: the First Mutual Fund
The bundling idea is a century old: in 1924, the Massachusetts Investors Trust became the world's first open-end mutual fund — shares you could redeem at will.
Investors pooled money, professional managers picked the stocks, and everyone split the gains.
It debuted with $50,000 in capital — close to a million in today's dollars — and grew it to $14 million in five years.
Then 1929 hit, the fund lost 83% of its value, and pooled investing spent decades rebuilding trust — though by the 1960s, firms like Fidelity had made mutual funds a household product again.
How to See It:
- The mutual fund's one big limit never changed: it prices just once a day, after the market closes.
2. Watch Bogle Launch the Index Fund
Before 1975, copying a market index by hand meant buying hundreds of stocks yourself — a full-time job.
Vanguard founder John C. Bogle's radical fix: a fund that simply tracked the S&P 500 instead of trying to beat it.
His First Index Investment Trust launched expecting $150 million — and raised just $11.3 million in 1976, earning the nickname "Bogle's Folly."
The folly got the last laugh: the '80s and '90s bull markets pulled millions of investors into index funds.
- Turns Jack Bogle's index-fund philosophy into a step-by-step plan
- Covers asset allocation, retirement accounts, and rebalancing without jargon
- Written by the community that has practiced low-cost investing for decades
How to See It:
- Every index fund and index ETF you own today descends from that underfunded 1976 launch.
3. See the False Starts Before the Real Thing
Index funds still had a catch: you could only buy or sell after the market closed each day.
Traders wanted index exposure they could trade all day, and 1980s electronic trading made it possible — almost.
The 1989 attempt, Index Participation Shares, traded like a dream until regulators ruled it a futures contract and forced it off the stock exchange.
Canada got there first: the Toronto Stock Exchange launched its own exchange-traded index product in 1990, while America went back to the drawing board.
How to See It:
- Innovation in finance is usually a legal question wearing a math costume.
4. Celebrate the Spider: SPY Arrives in 1993
The fix landed in January 1993: Standard & Poor's Depositary Receipts — SPDRs, or "Spiders" — holding the actual S&P 500 stocks.
Trading under the ticker SPY, it was the first true US ETF: an index fund anyone could buy on the exchange, any minute of the trading day.
It caught fire fast — 1995 alone delivered a total return over 38% as the S&P soared.
How to See It:
- SPY still trades today on the exchanges — here's how those exchanges actually work.
5. Ride the Boom: Diamonds, Cubes, and WEBS
Success bred a naming spree.
1996 brought World Equity Benchmark Shares (WEBS), bundling 17 country indexes so ordinary investors could buy foreign markets like stocks.
1998 added the Dow "Diamonds," the first ETF tracking the Dow Jones Industrial Average, and 1999 delivered the Nasdaq-100's QQQ — the "Cubes."
Vanguard joined in 2001 with its Total Stock Market ETF, wrapping virtually every US public stock into one ticker.
How to See It:
- By 2002 — nine years after SPY — the market already counted 102 ETFs.
6. Go Beyond Stocks
ETFs then colonized every asset class.
2002: the iShares investment-grade corporate bond ETF made bond investing as easy as a stock trade.
2004: the SPDR Gold Trust (GLD) became America's first commodity ETF, with US ETF assets hitting $228 billion that year.
2008: the SEC approved actively managed ETFs — though the very first, run by Bear Stearns, died within months when its parent bank collapsed in the financial crisis.
Active ETFs recovered spectacularly and are now one of the industry's fastest-growing corners; even spot bitcoin ETFs joined the party in January 2024.
How to See It:
- Whatever the asset — bonds, gold, crypto — the ETF wrapper eventually finds it; see the full menu in our guide to the types of investments.
7. Size Up ETFs Today
The numbers have gone vertical: thousands upon thousands of ETFs now trade worldwide, holding well over $10 trillion in assets — with the biggest slice in the United States.
iShares reigns as the largest brand, managing trillions across its lineup.
The single-fund crown changed heads in 2025, when Vanguard's S&P 500 ETF (VOO) overtook the original SPY — which had grown from a $27.88 close in its first full year to trading above $600, with hundreds of billions under management.
Most institutional investors surveyed now call ETFs a go-to vehicle, and the once-outrageous idea is simply how the world invests.
How to See It:
- Check any ETF's assets, fees, and holdings free on your broker's research page before buying.
- Lays out the low-cost index-fund strategy behind the FIRE movement
- Explains why avoiding debt and buying the whole market beats stock picking
- Written as letters to the author's daughter — plain answers, no jargon
Wrapping Up
The ETF is the index fund that learned to drive: same engine Bogle built, new wheels — and it hasn't stopped picking up passengers since 1993.
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