Warren Buffett is one of the wisest investors that the world has ever seen. He has some good advice for a lot of people when it comes to investing: go for an S&P 500 fund.
Mr Buffett has said and done a number of things that show he’s a big believer in S&P 500 funds.
He reportedly said to Jack Bogle, founder of Vanguard:
A low-cost index fund is the most sensible equity investment for the great majority of investors. By periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals.
My Motley Fool colleague, Keith Speights, also pointed out that over a decade ago Mr Buffett bet $1 million that a S&P 500 fund would outperform a group of hedge funds over a decade. He was right – the S&P 500 fund won by an average of almost 5% per annum to the end of the bet in 2018.
He has also instructed in his will that 90% of his money should be invested in a S&P 500 fund. Fees is an important reason why the S&P 500 fund can outperform expensive managers.
What is iShares S&P 500 ETF?
This investment is an exchange-traded fund (ETF) that tracks the S&P 500 for investors. It’s offered by Blackrock, the company behind iShares.
The ETF is domiciled in Australia, which means that there’s no need to do US tax forms called W-8BEN forms.
iShares S&P 500 ETF gives exposure to many of the largest and most profitable businesses in the United States. Whilst these businesses are listed in the US, many of them generate earnings from across the world, making them well diversified.
Blackrock says that this investment is good to “use to diversify internationally and seek long-term growth opportunities in your portfolio”.
Looking at the iShares S&P 500 ETF’s largest holdings, its biggest positions are: Apple, Microsoft, Amazon, Alphabet, Facebook, Tesla, Berkshire Hathaway, JPMorgan Chase and Johnson & Johnson.
As you look further down the list, there are many more recognisable names such as Visa, Walt Disney, Nvidia, Mastercard, PayPal, Procter & Gamble, Home Depot, Bank of America, Intel, Netflix, Exxon Mobil, Adobe and Salesforce. The list of quality names goes on and on.
For Aussies, this is one of the cheapest ETFs that is available on the ASX. It has an annual management fee of just 0.04% per annum. That means almost all of the gross returns become net returns for investors – not much is eaten away in fees.
Over the last decade, iShares S&P 500 ETF has delivered an average net return per annum of 16.4%, which is much stronger than what the S&P/ASX 200 Index (ASX: XJO) has generated because the share prices of the big banks and BHP Group Ltd (ASX: BHP) haven’t done much during that time.
One benefit of thinking about the iShares S&P 500 ETF right now is that the Australian dollar is stronger than it has been over the last couple of years compared to the American dollar. Right now, AU$1 is worth US$0.78. This means it’s cheaper to buy American assets, like a S&P 500 fund.