The iShares S&P 500 ETF (ASX: IVV) is falling, it's down 1% today and has fallen 3% in the past month. When share prices fall, I think it's a good idea to look at whether this is a good time to buy.
After all, Warren Buffett once suggested that investors should be greedy when others are fearful.
Of course, a 1% decline over one trading day, and a 3% drop over a month, is not exactly a huge fall. But, it's not that often that the IVV ETF falls by 1% or more on a single day.
I'll run through some of my thoughts on the appeal of the IVV ETF.
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Don't completely ignore the AI question
There is extensive market commentary about AI and data centres. I normally don't write about these aspects when considering the IVV ETF and there's so much coverage of those elements already. You'd need a crystal ball to truly know how those two factors are going to play out.
The most optimistic and pessimistic viewpoints about AI and data centres are probably too strong.
But, there are some important questions that I can't see clear answers to yet.
How would economies realistically operate if AI is successful as hoped by its strongest advocates?
How will these AI businesses generate enough revenue/profit to justify their valuations?
Are businesses depreciating their capital expenditure at the right rate? Or will rapid advancement mean there will be big impairments in a few years? Depreciating AI spending over three years or six years can make a big difference to a company's profit.
There are vast sums being invested in AI-related businesses, with hefty valuations attached to US tech companies and bullish assumptions about the future, so investors shouldn't totally ignore AI considerations when looking at the IVV ETF.
It is possible to overpay for an asset, even an exchange-traded fund (ETF). Overpaying can lead to low or negative long-term returns for that particular investment.
Why the IVV ETF could be a buy
The positives of the iShares S&P 500 ETF still exist.
It still has very low annual management fees of 0.04%.
The fund still gives access to 500 great businesses, with those holdings giving an evolving exposure to how the US (and global) economy is changing. Many of the world's strongest businesses are listed in the US, with incredibly powerful brands, operating leverage on a global scale, impressive balance sheets and the ability to invest heavily for future earnings growth.
We can buy the IVV ETF for a cheaper price than it was a few weeks ago.
Plenty of investors may use it as a regular dollar cost average (DCA) investment strategy, through the highs and lows. I wouldn't advise against that. But I think it could be wise to ensure diversification by regularly investing in other markets too, such as the ASX or Europe.
Reasons to look elsewhere
There's no doubt the IVV ETF has been a great investment and may continue to do so.
But the portfolio is becoming increasingly reliant on a few large tech businesses, with a rapidly increasing focus on AI. It's becoming less diversified, in my view.
Will all the spending on AI be worthwhile? Meta Platforms Inc's (NASDAQ: META) spending on its Metaverse has seemingly wasted many billions of dollars. I'm feeling cautious about the US share market.
ETF investing makes investing very easy for most people, but it shouldn't mean we invest in something no matter what if it's no longer appealing, in my view. Investors need to decide if this is still a good investment.
Long-term holders of the IVV ETF have done very well, but for investors seeking returns, it may be wise to diversify their holdings across different assets.
