The Power of Compounding and Cost Efficiency in Long-Term S&P 500 ETF Investing

Investing in the S&P 500 index has long been a cornerstone of wealth-building strategies, particularly for those with a long-term horizon. The combination of compounding returns and cost efficiency can transform modest initial investments into substantial portfolios over decades. This analysis explores the historical performance of the S&P 500, the compounding effect of its returns, and the critical role of low expense ratios in maximizing long-term gains. Based on this framework, we recommend two S&P 500 ETFs ideal for a $100 investment with a "forever" holding strategy.

Historical Performance: A Foundation for Confidence

The S&P 500 has demonstrated remarkable resilience and growth over the past century. According to data from Slickcharts, the index delivered an average annual return of 10.12% from 1928 to the third quarter of 2025, with an inflation-adjusted return of 6.85% over the same period. Over a 100-year span, the average annual return rose slightly to , with an inflation-adjusted return of 7.312%. For a more recent 50-year period, the average annual return was even higher at , with an inflation-adjusted return of 8.048%. These figures underscore the index's ability to outpace inflation and deliver robust growth, even during economic downturns.

The Magic of Compounding

Compounding is the engine that transforms average annual returns into exponential wealth. Consider a $100 investment in the S&P 500 in 1975. At an average annual return of , this investment would grow to approximately $28,500 by 2025. Even after adjusting for inflation, real return would still yield a portfolio of roughly $10,500-a 105-fold increase over 50 years.

This illustrates why long-term investors prioritize minimizing fees: every percentage point of drag from expenses erodes the compounding effect.

Cost Efficiency: The Silent Profit Enhancer

Expense ratios, though seemingly small, can significantly impact long-term returns. For instance, a 0.01% difference in fees between two ETFs can result in a 10–15% disparity in portfolio value over 30 years. Data from JustETF and other financial platforms highlight the State Street SPDR Portfolio S&P 500 ETF (0.02% expense ratio) and the SPDR S&P 500 UCITS ETF (Acc) (0.03% expense ratio) as two of the most cost-efficient options in 2025. These funds offer minimal drag on returns while tracking the S&P 500 with precision.

Top ETF Recommendations for a "Forever" Holding Strategy

1. State Street SPDR Portfolio S&P 500 ETF (0.02%)
   This fund stands out for its ultra-low expense ratio, making it ideal for investors seeking to maximize compounding. Its structure ensures minimal turnover and tax efficiency, further enhancing long-term gains according to investment analysis.

2. SPDR S&P 500 UCITS ETF (Acc) (0.03%)
   Slightly higher in fees than the State Street offering, this ETF remains a top choice for its liquidity, global accessibility, and strong track record of mirroring the S&P 500's performance as reported by financial analysis.

Both ETFs are suitable for a $100 investment, as their low costs allow even small contributions to grow substantially over decades. For investors prioritizing cost efficiency above all else, the State Street fund is the optimal choice.

Conclusion

The S&P 500's historical returns, combined with the power of compounding and the use of low-cost ETFs, create a compelling case for long-term investing. By selecting funds with the lowest expense ratios-such as the State Street and SPDR UCITS ETFs-investors can harness the full potential of market growth while minimizing unnecessary fees. For a $100 investment with a "forever" horizon, these strategies offer a path to substantial wealth, grounded in both historical evidence and modern financial best practices.