Why I prefer the ASX 200 over the S&P 500 right now

There are two reasons why I'm going for ASX shares over American stocks right now.

| More on:
A couple sitting in their living room and checking their finances.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

I own both S&P/ASX 200 Index (ASX: XJO) and S&P 500 Index (SP: .INX) shares in my investing portfolio. Both markets offer high-quality companies and a record of delivering respectable returns for investors over many decades.

However, most of the new investment purchases I have made for my portfolio over 2024 to date have been ASX shares and not S&P 500 stocks.

Obviously, I have nothing against the S&P 500 and its constituents. But personally, I believe that ASX shares are, on the whole, a better investment right now. There are two reasons why.

Why I prefer the ASX 200 over the S&P 500 right now

Reason 1: The S&P 500 has run hard

S&P 500 shares have been on a lucrative winning streak this year. If you had invested in an S&P 500 index fund, such as the iShares S&P 500 ETF (ASX: IVV), on 30 September 2023, you would be up an extraordinary 26.44% by 30 September 2024.

An investment in this ETF has returned an average of 13.14% per annum over the past three years and 15.8% per annum over the past five.

That compares to investing in an ASX 200 index fund. This fund would have returned 8.35% per annum over the past three years and 8.29% over the past five.

So, S&P 500 shares have been the clear winner against ASX 200 shares over any recent period. However, the S&P 500's breakout performance more recently has left the index a little pricey, in my opinion.

I think it's likely that, sooner or later, the S&P 500 will revert to delivering returns worth around 8.46% per annum, which is IVV's long-term average. As such, I think ASX 200 shares are the more prudent investment from a valuation standpoint right now.

Reason 2: The dividends are better on the ASX

Most ASX investors know that our stock market is heavy on dividends compared to most other markets. But a comparison with S&P 500 shares shows this in stark contrast.

Take an ASX 200 index fund like the iShares Core S&P/ASX 200 ETF (ASX: IOZ). Over the past 12 months, this index fund has doled out four dividend distributions, with an annual total of $1.14 per unit. That gives this ETF a trailing dividend distribution yield of 3.47%. And that's with the ASX 200 close to its latest all-time high. In the past, it hasn't been uncommon to see the ASX 200 yielding between 4-5%.

But it's a different story when it comes to American shares.

At current prices, the iShares S&P 500 ETF is currently offering a trailing dividend yield of 1.06%. That comes from the four quarterly dividend distributions investors have received over the past 12 months, equating to 6.178 cents per unit.

American shares have never had the propensity to pay out high dividends. As such, it's uncommon to see an American index fund yielding much more than 2%.

With the markets having such a huge run-up over the past 12 months or so, I think securing those dividends is more important than ever. Dividends provide a nice cushion when the markets are falling. If the stock market corrects in the next 12 months, those higher dividends should cushion an ASX 200 index fund far better than the thin income protection offered by the S&P 500.

Should you invest $1,000 in Ishares Core S&p/asx 200 Etf right now?

Before you buy Ishares Core S&p/asx 200 Etf shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Ishares Core S&p/asx 200 Etf wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 9 January 2025

Motley Fool contributor Sebastian Bowen 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 iShares S&P 500 ETF. The Motley Fool Australia has recommended 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.

More on Index investing

ETF spelt out with a piggybank.
Index investing

2 reasons to buy the Vanguard MSCI Index International Shares ETF (VGS) today (and 1 not to)

This index fund is popular, but there's a big catch.

Read more »

A person sitting at a desk smiling and looking at a computer.
Index investing

ASX index funds: Which is the best buy today?

When it comes to index funds, I think it's best to keep things simple.

Read more »

Index investing

$1,000 invested in the iShares S&P 500 ETF (IVV) at the start of 2021 is now worth…

This high-flying ETF has banked some stunning returns...

Read more »

A recreational fisherman holds a fishing rod with his hands apart indicating it was this big with a smile on his face.
Index investing

$10,000 invested in the Vanguard Australian Shares Index ETF (VAS) at the start of 2020 is now worth…

The returns of this popular index fund might surprise you...

Read more »

A young office worker is surrounded by peers who are clapping and congratulating her.
ETFs

What are the most popular ASX ETFs in Australia?

You might own one or more of these popular ETFs...

Read more »

A young woman drinking coffee in a cafe smiles as she checks her phone.
Index investing

Own the Vanguard International Shares ETF (VGS)? You banked 30% in 2024

This ETF was a lucrative one to own last year...

Read more »

Happy young couple saving money in piggy bank.
Index investing

$20,000 invested in the ASX 200 at the start of 2024 is now worth…

Investors have made more from dividends than growth over the past year...

Read more »

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Share Market News

What is the Dow Jones Index and which 30 companies make the grade?

Here is a brief history of the world's oldest share market index.

Read more »