The exchange-traded fund (ETF) iShares S&P 500 ETF (ASX: IVV) could be one of the best ETF choices on the ASX for a long-term investment.
There are some great reasons to consider the ETF at the moment, such as the fact that its share price is close to 10% lower than where it was in December 2021.
However, I don't think I'd change my thoughts on whether it's a buy if it were 10% higher or lower than where it is today. Valuation matters, but I don't think investors need to be as selective when it comes to an ETF like this one.
With that in mind, there are three reasons to consider this investment as an appealing buy today.
Very low fees
One of the most important reasons why I think this is a strong investment contender is that investors can get exposure to the US share market, which includes many multinational businesses, for a very low fee.
High fees can really hurt net returns. It doesn't matter whether we're talking shares, property, or cryptocurrency – fees reduce the net return. A 10% return is cut to 9% with a 1% fee. This can make a big difference over the long term.
A $10,000 investment turns into $67,275 if it returns 10% per annum over 20 years. If the return is only 9% per year then it's cut to $56,044 over 20 years.
Lower fees help net returns. The iShares S&P 500 ETF has an annual management fee of just 0.04%. That means almost all of the gross returns translate into net returns for the business.
But, the lowest fee won't necessarily achieve the strongest net return.
Diversification and quality
Many of the world's strongest and most dominant businesses are listed in the US.
While all 500 of the businesses in the S&P 500 are listed on an American stock exchange, many of them generate earnings from all over the world.
I'm talking about businesses like Apple, Microsoft, Alphabet (Google), Amazon.com, Visa, Mastercard, Nvidia, McDonald's, and Costco.
I think there's good industry diversification across the ETF, with sectors like IT, healthcare, financials, consumer discretionary, industrials, communication, and consumer staples all having weightings of more than 5%.
In my opinion, a lot of the businesses within this ETF are among the best at what they do. Those are the sorts of names I think can keep performing over the long term.
Long-term track record
Past performance is not a reliable indicator, particularly in the short term. But, I think the long-term returns of this evolving group of businesses show what the combination of quality and low costs can do.
Over the past five years, the iShares S&P 500 ETF has returned an average return per annum of 12.7%. I'm not sure what the next five years look like, but I think the ETF can produce double-digit returns.
One of the useful things about this ETF is that if there are any rising stars, they will become a larger part of the portfolio and help future returns.
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 no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon.com, Apple, Costco Wholesale, Mastercard, Microsoft, Nvidia, and Visa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2025 $370 calls on Mastercard, long March 2023 $120 calls on Apple, short January 2025 $380 calls on Mastercard, and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Alphabet, Amazon.com, Apple, Mastercard, 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.
