Given $1000 to invest, I can't fathom trying to individually own an average of $2 worth of each of 500 companies. And that doesn't even begin to cover it. Because the S&P 500 is market cap weighted, you would need to own $45.70 of AAPL, the top company. I don't know what the 500th stock is, but you'd probably need to own about $0.10 of it.
Even if trades themselves are "free", you still need to pay something like $0.13 per trade in SEC fees. So you are paying about a 100% commission on each of the smallest stocks you buy. And then another 100% commission when those stocks fall out of the index and you sell.
Just buy SPY. There are many good reasons that it has grown to $307 billion in net assets.
As far as I can tell, this is a fairly minor advantage, and if I wasn't using a robo-advisor, i certainly wouldn't be managing the basket directly just for this ability.
It already is "open sourced". Vanguard precisely discloses what's in each of their funds already [0].
The issue with independent investors perfectly replicating the securities underlying the index funds is that the vast majority of investors simply don't have enough capital to replicate the underlying components of the fund. Meaning, the typical investment amount of a randomly chosen investor cannot buy enough shares in proportion to each other to be as diversified as a massive $100+ billion fund. That's before discussing the issues with maintaining a balanced portfolio.
> Where each investor owns their portfolio outright and adjustments to the portfolio are made automatically by a free index manager bot that runs the simple algorithm an index fund manager like Vanguard would.
If you had enough capital and trusted such a bot enough, it's not hard. But the vast majority of people will never have enough capital.
[0]: See about 40% of the way through this PDF for the securities behind Vanguard's Total Stock Market Index Fund: https://personal.vanguard.com/funds/reports/q850.pdf?2210151...