25 years of ETF investing: Lessons from Australia's first ETFs

On 27 August 2001, State Street Investment Management helped usher in a new era for Australian investors with the launch of two pioneering exchange traded funds (ETFs): the State Street® SPDR® S&P®/ASX 200 ETF (STW) and the State Street® SPDR® S&P®/ASX 50 ETF (SFY). As Australia's first ETFs, they introduced a simpler, more transparent and cost effective way to access the share market. Twenty five years later, their story is inseparable from the growth of ETF investing itself, a story shaped by long term thinking, disciplined ownership, and enduring investing principles.

Time in the market beats timing the market

Over the past 25 years, STW and SFY have helped investors participate in the long term growth of Australian equities through market booms, corrections, financial crises and recoveries. In that time, one lesson has remained remarkably consistent: time in the market matters more than timing the market and share markets rarely move in a straight line.

The chart below illustrates the growth of a $1,000 investment in STW over the past 25 years, where the hypothetical ending amount for STW is $6,948.81. The effects of compounding – an investment principle that many may consider ‘boring’, prove to be simple yet effective. If you added an extra monthly $100 in contributions for the same period of time, the ending investment value amount would be a whopping $99,917. What this shows, is how consistent contributions through dollar cost averaging can give compounding effects an extra leg up. You can see this through our interactive tool here.

The message is simple: investors who stay invested through market noise give themselves the best chance of capturing long term growth. Trying to sidestep volatility often means sidestepping the recovery too, and those recoveries have historically driven a disproportionate share of long run returns.

Diversification in a single trade

One of the most enduring appeals of ETFs is their ability to provide diversified market exposure through a single investment. What once requires deep pockets, extensive research and multiple share purchases can now be achieved with a single trade on the ASX.

Broad market ETFs, such as STW, provide exposure to around 200 of Australia's largest listed companies, spanning sectors including financials, resources, healthcare, consumer goods, energy, and infrastructure. Because indices are typically weighted by market capitalisation, they naturally evolve as the economy changes, allowing investors to participate in the growth of leading companies without needing to make ongoing portfolio decisions.

Low costs, compounded over decades

Fees are one of the few things investors can control. One of the key advantages of index based ETFs is their ability to provide broad market exposure at a relatively low cost compared with many actively managed investment strategies.

Using STW as an example, the fund carries a management cost of just 0.05% per annum, or five cents per year for every $100 invested. Over a 25 year horizon, even small differences in fees can compound into meaningful differences in outcomes. Keeping more of your return invested is a simple but powerful principle, and one of the reasons ETFs have grown so rapidly in Australia and around the world.

A core building block, not a lone strategy

One of the reasons ETFs have become so widely used is their versatility. Broad market ETFs are often used as portfolio foundations, providing diversified, low cost exposure that can be complemented with other investments, whether international shares, thematic ETFs, fixed income, or alternative assets.

STW is a good example of this approach. Many investors use it as a core Australian equity allocation, building additional exposures around it to create a portfolio aligned to their objectives and risk tolerance. This "core and explore" philosophy has become a cornerstone of modern portfolio construction, allowing investors to combine broad market exposure with more targeted investment opportunities.

The next 25 years

The Australian ETF industry now spans more than 450 funds and over $361.58 billion in assets.¹ Twenty five years ago, STW and SFY helped begin that journey, pioneering a new way for Australians to invest. What started with just two ETFs has grown into a thriving industry that has changes the way millions of investors build portfolios.

While markets, economies and investment trends will continue to evolve, the principles that underpinned the success of STW and SFY remain timeless: diversification, low costs, transparency and long term discipline. The enduring lesson of the past 25 years is simple: successful investing is less about predicting the future and more about staying invested long enough to benefit from it.