Should I invest in the ASX 200 or the S&P 500?

Is it better for Aussies to stay local or go global?

Key points
  • Aussies have plenty of investment choices, with both ASX 200 shares and the S&P 500
  • There are lots of individual ASX shares that could deliver strong growth, while dividend-paying Australian shares can pay appealing fully franked dividends
  • But, Aussies can improve their portfolio’s diversification by investing in international shares

Australian investors have lots of choices about where to invest their money. The S&P/ASX 200 Index (ASX: XJO) and the S&P 500 Index (INDEXSP: .INX) offer plenty of potential.

Investors have probably heard of plenty of ASX's blue chips including Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP) and ANZ Group Holdings Ltd (ASX: ANZ).

Aussies can decide to invest in ASX 200 shares individually or own an exchange-traded fund (ETF) such as the iShares Core S&P/ASX 200 ETF (ASX: IOZ).

Woman looking at a phone with stock market bars in the background.

Image source: Getty Images

Why I like ASX 200 shares

I'm not sure how much capital growth CBA, BHP and ANZ are going to be able to achieve over the next five years.

However, I do believe that there are numerous opportunities within the ASX 200 that can deliver good growth over time.

We've already seen major success stories with names like Xero Limited (ASX: XRO), REA Group Limited (ASX: REA), ARB Corporation Ltd (ASX: ARB) and Breville Group Ltd (ASX: BRG). Xero is one I'm confident about for future growth.

I own ASX 200 shares such as Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Brickworks Limited (ASX: BKW) and Fortescue Metals Group Ltd (ASX: FMG) for diversified growth.

One of the best reasons to own ASX (200) shares, in my opinion, is that many of them can pay fully franked dividends to investors. Not only do investors get the benefit of the cash of the dividend, but the franking credits can reduce the tax owing for investors, or even create a tax refund for low-taxed Australian residents when it comes to lodging the tax return.

The franking credits can improve the after-tax returns for Aussies.

Over the long-term, the ASX 200 in total has delivered an average return per annum of between 9% to 10%, though the future is unpredictable.

I think the ASX 200 is a great hunting ground for wealth-building opportunities.

However, the ASX only represents a small part of the global share market. I think considering global shares is important for a diversification strategy.

Why the S&P 500 could be good too

The iShares S&P 500 ETF (ASX: IVV) is an ETF that enables investors to grab a piece of the S&P 500, a group of 500 of the largest and most profitable US-listed businesses.

I think that companies like Apple, Microsoft, Amazon.com, Alphabet and Nvidia have demonstrated strong returns over the past decade. It's the businesses that achieve the most revenue and profit growth over the long term that could deliver the strongest share price growth.

The S&P 500 is not known for its dividend income potential, and it's tech-heavy (which can be seen as a good thing or a bad thing).

But, for Aussies, I believe it's a good idea to get diversification through owning both ASX 200 shares and international shares, such as the iShares S&P 500 ETF.

Over the long term, it's possible that US shares could do very well because of their tendency to re-invest a lot of the profits for more growth.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has positions in Brickworks, Fortescue Metals Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended ARB Corporation, Alphabet, Amazon.com, Apple, Brickworks, Microsoft, Washington H. Soul Pattinson and Company Limited, and Xero. The Motley Fool Australia has positions in and has recommended Brickworks, Washington H. Soul Pattinson and Company Limited, and Xero. The Motley Fool Australia has recommended ARB Corporation, Alphabet, Amazon.com, Apple, REA Group, and iShares S&p 500 ETF. 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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