IVV ETF or VAS ETF: Where should I invest?

Are ASX or American shares a better pick right now?

| More on:
the australian flag lies alongside the united states flag on a flat surface.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If an ASX investor wished to buy an index fund on the Australian markets right now, chances are they will come up against two names: The Vanguard Australian Shares Index ETF (ASX: VAS) and the iShares S&P 500 ETF (ASX: IVV).

These two exchange-traded funds (ETFs) are amongst the most popular index funds on the ASX. Both offer something similar on the surface.

The Vanguard Australian Shares ETF represents an investment in the largest 300 companies on the Australian share market by market capitalisation. The iShares S&P 500 ETF represents the largest 500 companies on the American stock market.

But which should ASX investors choose? IVV or VAS? Australia or America? The choice is a little bit more complicated than it might first appear.

The battle of the ASX ETFs: VAS vs. IVV

At first glance, the IVV ETF might look like the obvious choice. After all, this ETF has returned a whopping 15.88% per annum over the five years to 30 June 2024. VAS has only managed an average of 7.24% per annum over the same period.

IVV's top holdings are world-class and world-leading dominators like Apple and NVIDIA. VAS boasts the respectable but far from world-famous Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB) among its largest positions.

However, the choice isn't so clear-cut for investors who might be more ardent students of investing history.

Sure, IVV beats the pants off the VAS ETF over the past five or even ten years. But this reflects a trend that may or may not continue to work in the iShares S&P 500 ETF's favour. That would be the enormous run-up in the valuations of America's largest tech giants.

The gains of the IVV ETF's top holdings have been astronomical. Apple alone has risen by more than 335% since this time in 2019, and Nvidia has exploded by more than 2,800%.

Other top IVV holdings like Tesla, Amazon, Alphabet and Meta Platforms have delivered triple-digit gains as well.

Sure, this might continue into the future. But that's not a certainty. To illustrate, if Apple were to double its share price over the coming five years, it would have a stupendous market capitalisation of almost US$7 trillion.

That's not impossible, of course. But it's arguably far from a sure thing.

Por que no los dos?

Another point worth mentioning is the iShares S&P 500 ETF's longer-term performance. Sure, the past five and ten years have been epic for investors. But its long-term performance has been far less impressive. As of 30 June, the IVV ETF has returned an average of 6.85% per annum since its inception in 2000. As the saying goes, past performance is no guarantee of future returns.

So, if I had to choose between these two ETFs today, I would go with an equal allocation to both. I think the best solution for investors is to achieve a balanced and highly diversified portfolio, which would arguably be achieved by an equal allocation to both the IVV and VAS ETFs.

This would balance out nicely. The IVV ETF's high concentration towards tech stocks complements VAS' tilt towards banks and miners. The iShares S&P 500 ETF has traditionally delivered growth over dividends, while the Vanguard Australian Shares ETF has leaned towards income over growth.

Together, these two ETFs would make for a fine marriage in my eyes.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Sebastian Bowen has positions in Alphabet, Amazon, Apple, Meta Platforms, National Australia Bank, Tesla, and Vanguard Australian Shares Index ETF. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Apple, Meta Platforms, Nvidia, Tesla, and iShares S&P 500 ETF. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Meta Platforms, Nvidia, 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.

More on Index investing

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Index investing

Is the Vanguard Australian Shares Index ETF (VAS) a buy at $105?

It can still be a good idea to buy index funds when they look expensive...

Read more »

ETF spelt out with a piggybank.
Index investing

2 reasons to buy the Vanguard MSCI Index International Shares ETF (VGS) today (and 1 not to)

This index fund is popular, but there's a big catch.

Read more »

A person sitting at a desk smiling and looking at a computer.
Index investing

ASX index funds: Which is the best buy today?

When it comes to index funds, I think it's best to keep things simple.

Read more »

Wife and husband with a laptop on a sofa over the moon at good news.
Index investing

$1,000 invested in the iShares S&P 500 ETF (IVV) at the start of 2021 is now worth…

This high-flying ETF has banked some stunning returns...

Read more »

A recreational fisherman holds a fishing rod with his hands apart indicating it was this big with a smile on his face.
Index investing

$10,000 invested in the Vanguard Australian Shares Index ETF (VAS) at the start of 2020 is now worth…

The returns of this popular index fund might surprise you...

Read more »

A young office worker is surrounded by peers who are clapping and congratulating her.
ETFs

What are the most popular ASX ETFs in Australia?

You might own one or more of these popular ETFs...

Read more »

A young woman drinking coffee in a cafe smiles as she checks her phone.
Index investing

Own the Vanguard International Shares ETF (VGS)? You banked 30% in 2024

This ETF was a lucrative one to own last year...

Read more »

Happy young couple saving money in piggy bank.
Index investing

$20,000 invested in the ASX 200 at the start of 2024 is now worth…

Investors have made more from dividends than growth over the past year...

Read more »