Exchange-traded funds (ETFs) are great ideas for good returns and easy investing.
Buying an investment property takes so much cash upfront and there are so many fees. When you own it there are so many things that can go wrong, maybe you can’t get a tenant or maybe they don’t pay. I’m not interested in that.
Owning individual shares don’t need as much ongoing effort, but researching the shares at the start can take a lot of time. It’s not for everyone.
ETFs require very little effort. You get to invest in hundreds, or thousands, of businesses indirectly for very minimal cost.
Here are two of the best ETFs to consider for your investment portfolio:
iShares S&P 500 ETF (ASX: IVV)
Most of the best ETFs are focused on a particular index. The S&P 500 Index might be the best index in the world. It represents 500 of the largest businesses listed on the stock exchanges in the US.
Why’s it so good? Well, because many of the world’s best businesses are headquartered in the US like Microsoft, Alphabet, Berkshire Hathaway, McDonalds, Visa, Mastercard and so on. Many of these businesses are global giants, so it’s not like you’re investing in an American index, I believe it should be viewed as a global index.
The ASX is good, but it’s a good idea to get exposure to a much bigger part of the global economy. The ASX only represents 2% of the global market capitalisation.
The last decade has been an exceptionally strong period for the S&P 500 as it recovered from the GFC. Over the past 10 years the iShares S&P 500 ETF has returned an average of 16.25% per annum.
I definitely don’t expect the next decade to be as strong, but it shows the strength of the underlying businesses. The trade war truce could cause another good run for shares over the next year.
Vanguard FTSE Asia ex Japan Shares Index ETF (ASX: VAE)
The trade war truce could also be good news for Asian shares. Investors have been wary of investing in Chinese shares or more broadly Asian shares because of worries about what could happen if a trade deal couldn’t be reached.
Since 1 October 2019 the ETF’s price has grown by 11% with many of the largest shares in the index performing well. Alibaba continues to grow its revenue very strongly.
At the end of December 2019 the five largest holdings were Alibaba, Tencent, Taiwan Semiconductor Manufacturing and AIA.
This ETF is invested in over 1,200 businesses with a relatively cheap price/earnings ratio (around 14), a good earnings growth rate of 11.4% and a return on equity (ROE) of 15.9%. These are attractive numbers for an index as a whole. Compared to the S&P 500, Asia looks a lot cheaper.
There is a lot to like about each ETF. The S&P 500 has great businesses with good growth prospects. The Asian ETF also has some good businesses exposed to faster-growing economies, those Asian businesses trading at cheaper prices.
Where to invest $1,000 right now
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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 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.
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