Home / Sector / ETFs / 3 reasons the iShares S&P 500 ETF (IVV) is a great long-term investment
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Tristan Harrison
Tristan Harrison is one of the longest-serving writers at The Motley Fool Australia. Tristan has been contributing ASX news and stock analysis articles since 2016. His aim is to help Australians learn about great ASX shares, with a focus on ASX dividend shares and undervalued ASX growth shares. He holds an advanced diploma from the Association of Accounting Technicians and is enrolled in the Chartered Institute Management Accountant (CIMA) qualification program.
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The iShares S&P 500 ETF (ASX: IVV) is one of the most appealing exchange-traded funds (ETFs) that Aussies can buy, in my opinion.
The ASX share market is great, with many high-quality businesses. However, it accounts for only 2% of the global share market, so there are plenty of opportunities outside of the ASX worth looking at.
Now, it would take a very long time and a stack of money to invest individually in all of the worthy shares around the world.
However, an ETF allows us to invest in a portfolio of shares in just one investment, which is very appealing for investors wanting diversification. While the IVV ETF does offer good diversification, it's not one of the three main reasons I'd want to own it. Let's dive in.
1. Low fees
Fees are detrimental to the net returns an investor can see from a fund. The lower the fees, the better for investors.
ETFs have unlocked the ability to provide investment funds at an incredibly low cost to investors. Improvements in technology mean it can be extremely cheap for a financial institution to track an index these days.
The IVV ETF has an annual management fee of just 0.04%, which is one of the cheapest fees available to Aussies.
2. Great businesses
The iShares S&P 500 ETF is invested in 500 of the biggest and most profitable businesses in the United States (and the world).
Over the long term, I think we've seen how the best companies are capable of continually winning in the business world if they have enduring competitive advantages.
A company like Microsoft has been around for decades. Alphabet's Google has been a presence on the internet for more than 20 years. Many households and businesses use Apple's phones, services and computers, and Amazon is a huge player in the e-commerce and cloud computing world.
There are many other large, integral companies in the S&P 500, such as Nvidia, Berkshire Hathaway, Meta Platforms, JPMorgan Chase, Visa, Mastercard, Procter & Gamble, Costco, Netflix and so on.
I believe excellent businesses are more likely to deliver good returns over time. The IVV ETF is full of good companies.
3. Strong returns from the IVV ETF
Ultimately, making returns is the key objective of investing.
Owning the IVV ETF has been an excellent long-term investment, thanks to the collective strength and performance of the companies I referred to.
If we look at the returns as at 31 March 2024, the IVV ETF has delivered an average return per annum of 16.7% over five years and 16.8% per annum over 10 years.
Past performance is not a guarantee of future returns, particularly in the short term, when we're looking at that level of performance.
But it wouldn't surprise me if, a decade from now, we're looking at an average return per annum in the teens because of how good its holdings are. Lowering interest rates could also help returns, as that boosts the value of assets, in theory.
I think this ASX ETF can work well as a core position, combined with some solid ASX shares.
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. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, 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, Apple, Berkshire Hathaway, Costco Wholesale, JPMorgan Chase, Mastercard, Meta Platforms, Microsoft, Netflix, Nvidia, Visa, and iShares S&P 500 ETF. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2025 $370 calls on Mastercard, long January 2026 $395 calls on Microsoft, short January 2025 $380 calls on Mastercard, and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Berkshire Hathaway, Mastercard, Meta Platforms, Microsoft, Netflix, 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.
