iShares S&P 500 ETF (ASX: IVV) is one of the most popular exchange-traded funds (ETFs) on the ASX, should you invest in it?
This ETF is offered by iShares of Blackrock – one of the biggest asset managers in the world. This particular Australian-based ETF is over $2.725 billion in size.
One of legendary investor Warren Buffett's most famous pieces of advice is that most people should just invest in a S&P 500 fund.
So, what is the S&P 500 ETF?
It gives us exposure to 500 of the biggest shares that are listed in the US. Actually, it has a few more than 500 holdings at the moment, but the idea is that it holds 500 shares.
The American economy has been a wonderful wealth creator over the past century. Many of the biggest changes we've experienced in our lives in the past decade have come about because of American companies.
Those businesses that have made the biggest impact on our lives are now among the biggest holdings of the S&P 500 such as Apple, Microsoft, Amazon, Facebook and Alphabet (Google). Other quality businesses also make up its top holdings including Berkshire Hathaway, Johnson & Johnson and JPMorgan Chase.
I like that the S&P 500 holdings continually change and reflects which businesses are generating the most growth.
The S&P 500 businesses may be listed in the US, but they generate earnings in many countries, they are truly global businesses. I think that provides most of the diversification we need.
The rest of the necessary diversification is supplied by the variety of industries that the S&P 500 is invested in. I think it offers a lot better diversification than Vanguard Australian Share ETF (ASX: VAS), which is mostly invested in banks and resource businesses.
A bonus with this ETF is that it comes with an ultra-low annual management fee of 0.04%.
Foolish takeaway
If I could only own one investment for the rest of my life, the S&P 500 would be one of my favourite choices. It may not offer franking credits or a big dividend yield, but it continue to offer excellent long-term capital growth and good compounding potential.
