The S&P 500 refers to the S&P 500 Index (INDEXSP: .INX), it’s made up of 500 of the largest US-listed stocks including Apple, Microsoft, Alphabet and Amazon.com. It has had a strong run in 2023 despite recession fears due to inflation and higher interest rates.
One popular way Aussie investors choose to invest in the S&P 500 is via ASX exchange-traded funds (ETFs) such as the iShares S&P 500 ETF (ASX: IVV).
Sure, the S&P 500 ETF is not as good value today as it was several months ago. But, that doesn’t mean that it can’t make investors good money for the long-term.
I’m going to run through some compelling reasons why the iShares S&P 500 ETF could still be a good investment today.
Long-term returns of the iShares S&P 500 ETF
Look at the long-term unit price of the ETF below.
There has been some volatility over the years, but the long-term trend has been good. I’m not sure what the future holds in the short-term and I can’t say for sure that it’s going to go up in the long run.
But the market has shown over the long term that share prices will follow earnings, and businesses in the S&P 500 have collectively delivered some good capital growth for investors.
The S&P 500 may have gone up a lot this year, but I’d say that it has largely recovered from the decline that occurred in 2022.
If we went back to 2018 or 2021, each of those years had a peak for the iShares S&P 500 ETF. We’re now much higher than the 2018 peak. I think in another five years, there’s a high chance that the iShares S&P 500 ETF will have risen pleasingly again.
Best way to get exposure to great US businesses?
The iShares S&P 500 ETF is one of the most effective ways to get a lot of exposure to many of the biggest and strongest global businesses such as Apple, Microsoft, Alphabet and Amazon.com. The portfolio has a weighting of more than 20% to just these four businesses.
We don’t know what the collective returns are going to be for these four businesses or all the other 496 ones, but the fact that we can get this allocation for an annual management fee of just 0.04% means that almost all of the future returns will stay in investor hands, which is a great benefit.
It can be the wrong decision to try to time when to invest in the overall market. Being able to make an investment that has a very cheap management fee can mitigate some of the share market danger when it’s invested in high-quality businesses.
Stronger Australian dollar
The Australian dollar has strengthened against the US dollar, with one Australian dollar able to buy US 68 cents, which is close to the strongest price we’ve seen over the last four months.
A stronger Aussie dollar means we can buy more assets in US dollar terms. While the stronger Australian dollar doesn’t offset most of the rise for the S&P 500, it does mean that we can invest at a better foreign exchange rate.
Foolish takeaway
The iShares S&P 500 ETF is a great way for Aussies to invest in US (or global) shares for a cheap fee. It may have risen strongly in the year to date, but I believe that it is going to be able to deliver more capital growth from here over the long term as the underlying profit grows.
