It’s clear to see that investing in the stock market can be an overwhelming experience. Those looking to invest ideally want to apply the key fundamentals to purchasing an investment – ‘buy low and sell high’ (or depending on your appetite, ‘buy low and hold forever’). However, these factors are just a small part of the decision-making process.
The S&P 500 Index
The S&P 500 Index (.INX) is a stock market index comprising of the top 500 large companies by capitalisation on the stock exchanges in the United States. Investors use this index as a benchmark of the overall US market, as a type of performance indicator for other investments. To be included in the Index, companies need to meet a strict set of criteria that is reviewed by a dedicated committee.
Why Not Just Buy It All?
The infamous Oracle of Omaha, Warren Buffet, has suggested investing in an Exchange Traded Fund (ETF) such as the iShares S&P 500 ETF (ASX: IVV).
Professional investors have a tough time beating the market, so what chance does the average investor have? Mr. Buffet says that if you are not a professional investor, then you are an amateur investor and unless you enjoy spending 6-8 hours per day researching investments, then investing in index funds could be for you.
One favoured approach is to adopt the investment principle of dollar-cost averaging. An example of this would be to buy a fixed dollar amount of a particular investment such as the iShares S&P 500 ETF at regular intervals over a long period. This will see the investor purchasing more shares/units when prices are low and less when the prices are high. Dollar-cost averaging removes the emotion from the investment and is an approach typically taken by robo-investment platforms like Raiz Invest (ASX: RZI).
Investing in ETFs offers diversification across assets and geographies and allows the opportunity to own a slice of the market as opposed to investing in individual shares.
The Rask Finance video below explains ETFs:
What The IVV ETF Can Bring To Your Portfolio
Even for an avid investor who gets satisfaction researching companies for hours on end, I believe there are many reasons why investing in the IVV ETF could be a considered choice.
The S&P 500 may comprise U.S. listed companies, however, this does not mean that your exposure will be isolated to the region. The S&P 500 is home to many of the world’s largest brands including Microsoft Corporation (NASDAQ: MSFT), Apple Inc. (NASDAQ: AAPL), Johnson & Johnson (NYSE: JNJ), and Visa Inc (NYSE: V). These businesses have impacted our lives for many years across geographies, so they are not only exposed to what they do in the U.S. but further on a worldwide scale.
Through this ETF, one purchase offers instant diversification across the 500 top US-listed companies as well as across multiple sectors. The iShares S&P 500 ETF’s biggest weightings include ~22% to Information Technology, ~14% to Health Care, ~13% to Financials, ~10.5% to Communication and ~10% to Consumer Discretionary.
Another attractive feature includes the low management fee of 0.04%, meaning that every $1,000 invested will incur a $0.40 fee. This is great as you want more of your investment working for you rather than being paid towards fees.
Great Returns And A Promising Outlook
The average annual return over the last 10 years as at 31 August 2019 was calculated to be 15.89%. The S&P 500 comprises many of the world’s most well-known companies who are continuously pushing to be the best at what they do. Although past performance can never be an indicator of future performance, this index has plenty to be excited about and in my opinion, worthy of having in my own portfolio.
I first looked at the IVV ETF in January 2019 and purchased at $370 per share. As at close of business on 06 September 2019, the share price was $438.85. This year has seen plenty of volatility across many markets and although I have only held this investment for a short time, I am optimistic that the index will continue to grow progressively over the long term.
[ls_content_block id=”14948″ para=”paragraphs”]
Disclosure: At the time of writing, Robert Rooth holds units in iShares S&P 500 ETF (ASX: IVV)
