The iShares S&P 500 ETF (ASX: IVV) could be the best way to passively invest in the stock market, in my eyes.
There a few things that I’d like to see from an ETF investment, and the IVV ETF ticks them all.
Low management fee
This investment has an annual management fee of just 0.04%. That’s so low, it’s almost nothing!
Low fees can play an important role in our investment returns because the higher the fee, the less wealth stays in our portfolio, and the less there is to compound in the next 12 months.
Plenty of active fund managers charge a fee of at least 1%, as well as performance fees.
Diversification
While all of the businesses within the IVV ETF portfolio are listed in the US, many of them are truly global businesses, so the underlying revenue and earnings are very diversified.
When I talk about global businesses, I’m talking about names like Microsoft Corp (NASDAQ: MSFT), Apple Inc (NASDAQ: AAPL), Amazon.com, Inc. (NASDAQ: AMZN), Alphabet Inc Class A (NASDAQ: GOOGL), Meta Platforms Inc (NASDAQ: META) (Facebook and Instagram), Visa Inc (NYSE: V), Mastercard Inc (NYSE: MA), McDonald’s Corp (NYSE: MCD) and Adobe Inc (NASDAQ: ADBE).
It’s also diversified in the way that I’d want to see the spread across different sectors.
At the time of writing, IT is the sector with the biggest weighting, followed by healthcare, financials, consumer discretionary and communications. Alphabet and Meta Platforms are counted as communication businesses, while Amazon is counted as a consumer discretionary business. So, there’s a big tech allocation here.
Strong return potential
No-one knows what future returns are going to be. However, a good investment that has done well and is still fairly priced, I think it can the investment keep doing well.
The IVV ETF has done very well – it has delivered average net returns per year of 16.25% over the past decade and 13.25% in the last five years.
Many investment professionals would love to be able to tell their clients that their own net returns had been that good over the past five and ten years.
In my eyes, the iShares S&P 500 ETF can keep delivering net returns of around 10% per year (or more) because of the strong businesses within the portfolio.
