I strongly believe that the best place for any Australian’s money over the ultra-long-term is (ASX) shares. You don’t need to take on debt to buy shares and they have proven to deliver the strongest returns over time. Exchange-traded funds (ETFs) can offer easy investing and good returns as a way to access shares.
Most investors reading this article will have a good understanding of the businesses on the ASX, but it’s much harder to be knowledgeable about the other 98% of the shares listed around the world.
The easiest way to get exposure to overseas investments could be through an ETF. These funds can give diversification to a whole range of good quality shares, with a low management fee.
Two of lowest annual management fee ETFs are these two:
Vanguard US Total Market Shares Index ETF (ASX: VTS)
This ETF has over 3,500 holdings of US-listed businesses and gives an investor exposure to essentially the entire US share market. It has an extremely low annual management fee of 0.04% per annum, which leaves a lot more net returns for investors.
There are five different industries that have more than 10% of the ETF’s asset allocation with technology having the biggest allocation at around 20%. As you can imagine, the ETF’s biggest holdings include Microsoft, Apple, Amazon, Facebook and Alphabet.
Due to the strength of the US market the last five years of returns for the ETF has been very good at an average of 15.5% per annum. Past performance doesn’t guarantee future performance, but the strength and quality of the US’ biggest companies are likely to continue for a long time.
iShares S&P 500 ETF (ASX: IVV)
Similar praise can be heaped on this S&P 500 ETF. Its top holdings are also the FAANG shares along with Microsoft, although it only has 500 holdings as the name would suggest. However, this is still excellent diversification.
Its annual management fee is also a staggeringly-low 0.04% per annum. Warren Buffett himself is a fan of the S&P 500 as an index and he has struggled to beat its performance with his own investing in recent times.
According to Blackrock, the S&P 500 ETF’s performance has been slightly stronger over the past five years at an average of nearly 15.8% per annum.
These two ETFs are full of quality global businesses that are changing the world every year, unlike most ASX businesses that are limited to Australia. Although they aren’t trading cheaply, they could be excellent long-term investments.
The main issue is that they both pay very little income. An idea might be to mix them with a portfolio of quality ASX dividend-paying shares like these.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.