The exchange-traded fund (ETF) iShares S&P 500 ETF (ASX: IVV) is one of the more popular ETFs that give investors broad access to the share market. But can buying it at a price under $45 make you rich?
Its net assets were around $5.4 billion at the end of April 2023. So investors already have a lot of money invested.
But can it deliver a lot more growth for investors and is it a good way to invest? I'm going to outline three reasons why I think it's a good option.
Extremely cheap management fee
This ETF has one of the cheapest expense fees around, with an annual fee of just 0.04%.
The great benefit of having a cheap management fee is that it means that most of the gross/total returns turn into net returns. In other words, investors keep more of the returns in their pockets.
Plus, it doesn't charge any performance fees, while many active fund managers are charging 1%, 1.25%, or even more per annum.
So, over time, the iShares S&P 500 ETF can deliver impressive net returns because hardly anything is lost to fees.
Strong investment holdings
As the name suggests, the ETF is invested in 500 businesses. These businesses are some of the largest and most profitable companies listed in the US.
The names within the portfolio are regularly changing, but the overall group has performed well for decades.
Investors have probably heard of a number of the big businesses in the iShares S&P 500 ETF portfolio. Some of the biggest positions include Apple, Microsoft, Alphabet, Amazon.com, Nvidia, Berkshire Hathaway, and Meta Platforms.
These businesses are among the world's leaders in their respective industries. Any new entrants in their respective fields would find it incredibly difficult to displace them. So, I'd say that plenty of the businesses within the ASX ETF have very strong economic moats, which can then enable investors to make good returns.
Good long-term returns
Past performance is not a reliable indicator of future returns. However, the iShares S&P 500 ETF has done very well over the long term.
As of April 2023, the ETF has offered an average return per annum of 14.1% over the prior five years. If it keeps making a return of that level then I think investors can become very rich given how well it's doing, the diversification it offers, and the fact that most of the returns come from capital gains.
On paper, capital growth can deliver stronger compound growth compared to dividends because investors aren't losing a chunk of the return to tax each year. If most of the return comes through dividends then investors may need to pay a fair amount of tax — that's assuming they're in one of the higher tax brackets.
I think iShares S&P 500 ETF's portfolio is high quality and it can continue to deliver long-term returns.
Foolish takeaway
I believe that investors can become rich by utilising the iShares S&P 500 ETF and regularly investing in it. I love the diversification and the strong businesses it's invested in.
