On this day in economic and financial history…

The S&P 500 was created on March 1, 1957, when Standard & Poor’s expanded the “S&P 90” to its present form. Introduced half a year after the dominant Dow Jones Industrial Average updated its components for the first time in 17 years, the S&P resembled a greatly expanded version of that iconic index. At the time, the Dow was still principally an industrial concern — 26 of its 30 components could be classified as “industrials,” or companies whose primary business was making things, compared to 425 industrials out of 500 components in the S&P 500. Half of the S&P’s value was tied to materials and energy stocks within the industrials grouping, and 16 of the Dow’s components were of the same business model. However, despite the similarities between these two indexes of wildly different sizes, the S&P’s diversity has helped it to superior returns: In the 50 years following the S&P 500’s creation, it grew at an annualized rate of 7.2%, compared to 6.7% for the Dow.

Professor Jeremy Siegel and Jeremy Schwartz of WisdomTree Investments dug into the S&P 500’s history to celebrate its 50th anniversary, and these are some of their key findings.

1. Only 6% of the index was made up of tech, health care, and finance in 1957. Today, half the stocks in the S&P 500 can be classified in one of these three categories.

2. Of the original S&P 500 companies, 111 survived intact for 50 years. Of these stocks, 20 outperformed the index’s annual returns by an average of at least 5% per year. A portfolio of the 20 largest companies on the original S&P beat the index by about 1% each year.

3. The best-performing stock from the original S&P 500 is Altria , which provided a 19.9% annual return for the first 50 years of the index. A $1,000 investment in Altria on March 1, 1957 would have grown to $8.4 million 50 years later, but the same investment in the S&P would have returned $168,000 over the same time frame. The second-best stock on the original S&P was Thatcher Glass, which Altria (then Philip Morris) bought in 1988, and which turned $1,000 into about $5 million over 50 years. The Dow missed out on much of these gains, as it only included Altria as a component from 1985 to 2008.

4. Almost 1,000 companies were added to the index over 50 years, but a portfolio of the original S&P 500 companies would have easily beaten the actual index, with all its modifications. Like the Dow, which would have produced far greater gains by simply holding onto its original 30 components, the S&P would have been better if it had never changed.

Altria has been the best-performing stock of the past 50 years, but as the number of smokers in the U.S. continues to steadily …read more
Source: FULL ARTICLE at DailyFinance