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). Investing in ETFs offers diversification across assets and geographies and provides investors with the opportunity to own a slice of the market as opposed to investing in individual shares.
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.
The Rask Finance video below explains index funds:
What The IVV ETF Can Add 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 iShares S&P 500 ETF could be a considered choice.
The S&P 500 comprises U.S. listed companies, however, this does not mean that your exposure will be isolated to that region. The S&P 500 is home of many of the world’s largest brands including Alphabet Inc (NASDAQ: GOOGL), General Motors (NYSE: GM) and Mastercard Inc (NYSE: MA). As these businesses have operations on a worldwide scale, their earnings are diversified across geographies instead of being solely exposed to the US.
Through the IVV ETF, one purchase can offer instant exposure to the top 500 US-listed companies as well as diversification across multiple sectors. The 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 of the IVV ETF is the low management fee of 0.04%, meaning that every $1,000 invested will incur a $0.40 fee (plus brokerage). This is great since you want more of your investment working for you rather than being paid towards fees.
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, is worthy of having in my own portfolio.
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.
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Disclosure: At the time of writing, the author of this article holds units in iShares S&P 500 ETF (ASX: IVV).