3 things about the iShares S&P 500 ETF (IVV) every smart investor knows

I believe this fund provides strength and diversification.

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In my opinion, the iShares S&P 500 ETF (ASX: IVV) is one of the most effective investments on the ASX. This exchange-traded fund (ETF) invests in 500 of the largest businesses listed in the United States.

Inside the fund's portfolio are many of the world's most recognisable companies. They include Microsoft, Apple, Amazon, Meta Platforms, Nvidia, Alphabet, Costco, Visa, Mastercard and McDonald's.

I think investors can do well over the long term from this portfolio of businesses because of their underlying quality and track records.

There's a lot to like about the IVV ETF. Here are three reasons why.

Low fees

The very appealing management fee is the most obvious reason to like the fund, in my opinion.

When operating costs are very low, most of the fund's value and performance stay in the hands of IVV ETF investors rather than being lost to expensive management or performance fees. The low cost can make a difference in the thousands of dollars to an investor's portfolio value over the long term.

How low is the cost? According to iShares, the current annual management fee is 0.04%.

It's one of the cheapest fund investments on the ASX, which is great in my view.

Global earnings base

It would be a mistake to think of this fund as a US fund that is only focused on the US economy.

Consider companies like Microsoft, Apple and Alphabet – these are truly global businesses with a presence in most countries around the world. McDonald's operates in around 119 countries. It's a similar story for many of these impressive companies.  

According to S&P Global, around 29% of the total revenue generated by S&P 500 companies analysed came from non-US sources in the second quarter of 2024.

Not only is earnings diversification pleasing to see for the IVV ETF, but it also means those companies have numerous places to invest their money to try to grow earnings in the coming years and make the most substantial return.

Warren Buffett loves the S&P 500

Warren Buffett is arguably one of the world's greatest-ever investors, who helped Berkshire Hathaway become the giant US company it is.

He regularly advocates for (American) investors to choose an S&P 500 fund. In 2017, Buffett said:

Consistently buy an S&P 500 low-cost index fund. I think it's the thing that makes the most sense practically all of the time. Keep buying it through thick and thin, and especially through thin.

The temptation when you see bad headlines in newspapers is to say, well, maybe I should skip a year or something. Just keep buying.

American business is going to do fine over time, so you know the investment universe is going to do very well.

If it's a great choice in Buffett's eyes, it's a compelling pick, in my opinion.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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. Suzanne Frey, an executive at Alphabet, 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, Costco Wholesale, Mastercard, Meta Platforms, Microsoft, 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, Mastercard, Meta Platforms, Microsoft, Nvidia, Visa, 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.

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