Why an S&P 500 ETF is the first pick for my 2022 Stocks & Shares ISA!

I’m searching for the best investments for my 2022 Stocks and Shares ISA. Here’s why I’m choosing an S&P 500 as my first pick.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Shopping cart with boxes labelled REITs, ETFs, Bonds, Stocks

Image source: Getty Images.

I think using a Stocks and Shares ISA is a smart way to invest. With these investment accounts, any dividends I receive or capital gains made within them aren’t taxed.

For my own ISA I firmly believe in having a long-term outlook. I invest in stocks I expect to hold for 10 years or more and that ideally provide dividends I can reinvest to help build my wealth. If I’m lucky, hopefully the investment will grow to be worth a lot more and because of the tax-free wrapper, I should get to keep all of the gains.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

I could pick individual stocks, but I prefer to use exchange traded funds (ETFs) and for my 2022 Stocks and Shares ISA, my first pick is going to be an S&P 500 ETF.

Why the S&P 500?

At the end of 2020, the total value of the worldwide stock market was estimated to be almost $94trn. Out of that, the US accounted for over 55%. Therefore I feel that the US is a good starting point.

The S&P 500 is the key important index in the US. with 500 large companies selected by a committee. Firms must have a big market cap, at least 10% of shares outstanding and meet liquidity and profitability requirements.

It includes big-name companies such as Microsoft, Apple and Amazon and covers a wide a variety of sectors.

Not that it’s perfect. One issue is that the index only includes US companies. It’s true that many of them derive some earnings from outside of that country, but this percentage has been falling over time.

Another downside of buying the S&P 500 is that I limit my returns to those of the index. I could be wrong, but by picking individual stocks I might be able to outperform it.

However, this fund allows me to invest in 500 companies by holding a single share. It’s a low-cost way of diversifying across companies and sectors. I’m happy to give up the possibility of a higher return from investing in individual companies for the ease of this diversification.

Selecting a fund

As such an important index and essential barometer of US stock market health, it’s no surprise that there are lots of ETFs available. 

The largest one listed here in the UK is iShares Core S&P 500 UCITS ETF. The cheapest one is Invesco S&P 500 UCITS ETF with an ongoing charge of 0.05%.

For my own ISA, I’m again choosing Vanguard S&P 500 ETF (LSE: VUSA). It sits in the middle in terms of size ($47m) and costs (0.07%) and pays a dividends of 1.12% that I’m planning to reinvest into my ISA.

During 2021 its price rose around 30%. However, year-to-date, it’s down around 6%. That said, it’s been a turbulent start to 2022 and much of the stock market is down. However, for my ISA I’m more interested in the long term and over 10 years, it has seen a 320% increase.

The US index has averaged around 10% growth a year since 1957 and though nothing in investing is certain, I’m hopeful that can continue. I’m happy to make this S&P 500 ETF the first pick for my 2022 Stocks and Shares ISA.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Niki Jerath owns shares in Vanguard S&P 500 ETF. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon, Apple, and Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Should I invest in the FTSE 100 – or try to beat it?

Our writer has the option of investing in a FTSE 100 tracker fund. So why does he choose to buy…

Read more »

Young black woman walking in Central London for shopping
Investing Articles

£1,500 to invest in a Stocks and Shares ISA? Here’s how I’d do it

Our writer has been investing in his Stocks and Shares ISA. Here he details how he could put £1,500 in…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

2 top FTSE 100 shares I’d buy before the market rebounds!

Christopher Ruane identifies a pair of FTSE 100 shares that have both tumbled in the past year and that he…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

Here’s why the next bull market may have already begun

The UK stock market has taken the Bank of England's interest rate hike in its stride and green shoots suggest…

Read more »

Gold medal
Investing Articles

No contest! Here’s my stock of the week

An update from this company offered some relief from the economic gloom. It's this Fool's stock of the week.

Read more »

Cogs turning against each other
Investing Articles

Scottish Mortgage shares are back on the rise: is now the time to jump onboard?

Scottish Mortgage shares have risen over 25% in the past 30 days. This Fool takes a look at why and…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Why do Lloyds shares seem so cheap?

Lloyds shares have been losing ground and now look cheap on some valuations. So why has our writer removed the…

Read more »

Investing Articles

How to invest in shares to help beat inflation

Soaring prices could well outstrip our investing returns this year. I think it's more important to find shares to beat…

Read more »