Is the iShares S&P 500 ETF (ASX: IVV) one of the best long-term investment options?
Past performance is not a guarantee of future performance, but I think you’ll find that it’s hard for most people to outperform the S&P 500 over the long-term (even before fees). Not because it’s just an index fund necessarily, but because it’s such a high-quality one.
One of the key rules to get into the S&P 500 is that the company generally must be profitable, which I think already rules out some of the bad shares and lifts the quality of the index.
The S&P 500 also has a high weighting to some of the best businesses in the world like Alphabet, Apple, Berkshire Hathaway, Visa and MasterCard. These great businesses are global giants that keep growing and have strong economic moats, they aren’t just ‘American’ businesses like how many large Australian businesses can be described.
When you also add in the fact that you can access the S&P 500 for extremely low fees, it looks like an attractive option compared to most other managed investment ideas. The iShares S&P 500 ETF has a management fee of only 0.04% and has returned an average of 16.2% per annum over the past decade.
But things may not always be so good for the US economy – so don’t expect the next decade to show mid-teen annual returns. The various bits of stimulus that the US Fed and government have given recently will wear off, economies are meant to have leaner years sometimes – that’s how cycles work. It gets very economically unhealthy if an economy isn’t allowed to feel a slowdown sometimes.
US stock exchanges might not be the place where the best businesses are listed in the coming decades, which wouldn’t be great the S&P 500’s future returns. It could be Europe, London, Canada, Israel, Australia or Asia that house the best businesses of the future. It’s quite possible that economic or political shifts could cause some companies to reassess if the US is the right place to be.
I think there’s a lot to like about this ETF and I would be perfectly happy to just own that as my share portfolio and nothing else. Warren Buffett himself has said he wants his wife to invest in the S&P 500 when he has gone.
Even so, the dividend yield of the S&P 500 is far too low to be a good income choice, which is why these top ASX shares could provide a good balance with the ETF in a portfolio.
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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.