Is the iShares S&P 500 ETF (ASX: IVV) a good choice for a long-term investment?
Exchange-traded funds (ETF) are a good way for investors to get exposure to a large group of shares in a single trade, the good ones can provide excellent diversification.
But, even if you limit yourself to just ETFs, you still have to pick one to be your long-term investment.
I can’t think of a better idea than a S&P 500 fund to do the task. Vanguard MSCI Index International Shares ETF (ASX: VGS) is also a good option but I feel a bit wary about how much of the weighting will be to Chinese businesses in the future. I’d rather decide my own weighting to Asia with an investment in Vanguard FTSE Asia Ex Japan Shares Index ETF (ASX: VAE).
One of the best things about the iShares S&P 500 ETF is that it has an extremely low annual management fee of 0.04% per annum, which leaves a very high level of net returns for investors. Fees can be a massive detractor from investment returns over time.
As the name suggests, you are investing in 500 of the best listed businesses in the US including Microsoft, Apple, Amazon, Facebook, Berkshire Hathaway, JP Morgan, Johnson & Johnson and Alphabet. It’s important not to think of these businesses as just ‘American’ businesses because their earnings are truly global, it’s just that their HQ is based in the US.
I like that the ETF is diversified in terms of industry. Of the sectors with more than 10% allocated, approximately 21.6% is allocated to IT, 13.6% to Health Care, 13.2% to Financials, 10.3% to Communication and 10.3% to Consumer Discretionary. This is much better than the ASX.
Warren Buffett himself has said that many (American) people would be best off investing in a S&P 500 fund, which is what he has suggested that his wife does when he is no longer around.
I would be perfectly happy for the iShares S&P 500 ETF to be my only investment and steadily invest in it regularly throughout the year and over the decades. But it does seem to be flying quite high at the moment, so I think there are better investment opportunities around right now.
For example, these top ASX shares could be more dependable in good times and bad for earnings growth and dividends.
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Motley Fool contributor Tristan Harrison owns shares of VANGUARD FTSE ASIA EX JAPAN SHARES INDEX ETF. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. 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.