ASX-listed exchange-traded funds (ETFs) are very effective investments because of how easy it is to buy an entire portfolio in a single trade. This type of great buy-and-hold option can provide investors with diversification and good long-term returns.
But, where should Aussies invest? There are some great ASX growth shares available that could become much larger businesses in the coming years.
But, in terms of ASX ETFs, I think it's a good idea for Australian investors to look at international investments. There's a lot more to the global share market than just ASX shares, thanks to numerous high-quality businesses being listed in northern hemisphere markets.
There are quite a few wonderful ASX ETFs that could be strong picks to build wealth. iShares S&P 500 ETF (ASX: IVV) is one of the most compelling ideas for a few different reasons.
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Great businesses
It seems fairly obvious to say, but I think the best businesses will deliver very good returns.
The IVV ETF gives investors exposure to the S&P 500, an index of 500 of the largest and most profitable businesses that are listed in the US.
The United States is where many of the world's strongest businesses are listed such as Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta Platforms, Broadcom, Tesla, Berkshire Hathaway, Visa, Walmart, Mastercard and Costco.
When you look at those names, they are involved in some of the biggest trends and changes in modern life such as AI, cloud computing and supercomputing, driverless cars, digital payments, chips, social media, video gaming, e-commerce and more.
The products and services that are provided by these businesses are (mostly) driving significant earnings growth, which is a strong tailwind for shareholder returns. Those companies also have impressive financial statistics, such as return on equity (ROE), the strength of the balance sheet and strong profit margins.
Low fees
Management fees can play an important part in how appealing the net returns of a fund are. It's common for Australian fund managers to charge at least 1% of annual management fees, as well as performance fees if they outperform their benchmark. That can lead to net returns being materially lower than the gross returns.
The IVV ETF, on the other hand, has exceptionally low fees for an ASX ETF. iShares S&P 500 ETF has an annual management fee of just 0.04%. That's very close to zero and leaves nearly all of the returns in an investor's hands.
Strong returns
Past performance is not a guarantee of future returns, but the IVV ETF has performed exceptionally well.
In the last decade, the iShares S&P 500 ETF has returned an average of 15.56% per year. That shows the businesses involved have performed admirably well for investors.
If someone had invested $10,000 ten years ago, it would have grown into $42,469 – more than quadrupled.
I wouldn't expect the next decade to be as good as that, but the IVV ETF is an exceptional place to invest for exposure to US businesses and it's a great option for building wealth, in my view.
