Is the iShares S&P 500 ETF (ASX: IVV) share price a buy after falling around 13% since the start of October?
Warren Buffet, perhaps the world’s greatest investor, said that every regular person should just stick to investing in a low-cost S&P 500 fund. Why would he suggest that?
Here are some of the reasons:
As the name might suggest, a S&P 500 fund is invested in around 500 holdings. Spreading the risk across 500 different businesses is a good way of mitigating any issues with an individual business.
These businesses generate earnings from across the globe, they aren’t just American businesses – it just so happens they are listed in the US.
Some of the S&P 500’s largest holdings include Microsoft, Amazon, Apple, Berkshire Hathaway, Facebook, Johnson & Johnson, JP Morgan Chase and Alphabet. There is more of a technology slant to the index these days, but it is still very diverse in the top holdings and indeed in the entire portfolio.
The last few months have put a bit of a dampener on returns, but even with recent declines it is showing an average return per annum of 12.93% over the past decade.
The holdings in the ETF are constantly changing, so it will always own the rising businesses and will drop the ones that aren’t doing so well. That means it could keep generating good returns over the long-term as the holdings evolve.
Achieving a good gross return is one thing, but accessing the returns for a low cost is also very important. The lower the fees the higher net returns there are for investors.
This Blackrock ETF charges investors an annual management fee of only 0.04%, which is essentially nothing.
Another reason to like it is that sticking to one investment should save on brokerage fees.
The price/earnings ratio is currently around 23 according to Blackrock. It’s high partially because its top holdings are influenced by the high p/e tech shares, but it is also trading at a higher valuation.
If the S&P 500 were going to be the only investment in my portfolio I’d be happy to buy it today, but I think there are better valued growth options on the ASX.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.