Selecting an ETF for my own portfolio

There are a lot of choices when it comes to S&P 500 funds, offered by most if not all of the large investment companies. The largest one listed in the UK is iShares Core S&P 500 UCITS ETF with a size of over £40bn. The cheapest one is Invesco S&P 500 UCITS ETF with an ongoing charge of 0.05%.

For my own portfolio I’ve chosen VUSA, as this seems to sit in the middle in terms of size ($38bn) and costs (0.07%). It also pays a dividend, which is currently 1.12%.

Tracking the flagship US index means the ETF contains all 500 companies, which are selected by a committee. Firms must have a big enough market cap, have at least 10% of shares outstanding, and meet liquidity and profitability requirements. It includes big-name companies such as Microsoft, Apple, and Amazon and spans a variety of sectors such as technology, retailers, and banking.

One downside is that the ETF only includes companies from the US. It’s true that many of these firms derive some of their earnings from outside of that country, but this percentage has been falling over time.

Another issue with 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 ETF allows me to invest in 500 companies by holding a single share. For me, it’s a low-cost way of diversifying massively across companies and sectors. I’m happy to forgo the possibility of a higher return from investing in individual companies for the ease of this diversification.

Why VUSA is still one of my top picks

As the famous saying goes, ‘It’s tough to make predictions, especially about the future’ and I think this is particularly apt for 2022. No one can say for sure the course of inflation, interest rates, or the Russia-Ukraine conflict.

Stocks go up and down and it’s possible that over the next few months some of the companies in this ETF might take a hit. However, over the long run they’re very likely to recover. This is because of the S&P 500’s selection criteria. In essence, they must be fundamentally solid with a long history of earning positive average returns.

The S&P 500 has been around for decades, has proved enormously resilient and has averaged around 10% returns per year since 1957. Though there are no guarantees, I’m hopeful in the future we might see similar long-term performance. If so, this fund will see a good return.

This is why Vanguard S&P 500 ETF is one of my top ETF picks to stay on course during turbulent times. I’m happy to continue to include it among my holdings as part of a balanced portfolio.

The post Why VUSA is still 1 of my top ETF picks! appeared first on The Motley Fool UK.

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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. 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.

• Dividends from shares are a source of passive income
• Property is considered as a safe long-term asset class
• Potential safety from diversification can help offset a lower yield

One of my favourite strategies for passive income is to buy dividend-paying shares. However, rather than pick and choose individual stocks, I’ve always been a fan of exchange traded funds (ETFs). These allow me to invest in multiple companies by just holding one share and are usually low cost. There are lots of choices of funds available, but here’s one of my ‘must-have’ passive income ETFs for 2022.

A property ETF

Many investors consider property as one of the safest long-term asset classes. Though I might be wrong, in the turbulent times at present, I think property with its stable income streams and potential for capital appreciation is more important than ever. Although there are various ways to get exposure to property, for my own portfolio a real estate ETF is high on the priority list.

The fund I’ve been looking at is iShares UK Property UCITS ETF GBP DIST (LSE: IUKP). This dividend-paying ETF aims to provide diversified exposure to UK real estate by tracking the FTSE EPRA/Nareit UK Index. The index is designed to track the performance of property companies and real estate investment trusts (REITs) listed on the London Stock Exchange.

It’s a decent size, with over £600m in assets, has a relatively low ongoing charge, and has been going since 2007.

The ETF is also well-diversified, holding the 40 firms listed in the index. These operate in a wide variety of sectors including industrial, residential, and healthcare property.

Out of the 40 companies, the largest holding is Segro at just over 20%. This specialises in out-of-town business space and is one of the biggest industrial property companies in Europe. Real estate giants such as Land Securities Group and British Land are also in the fund, as is the largest UK operator of purpose-built student housing, The Unite Group.

A dividend-yield I can work with

One of the main drawbacks to iShares UK Property UCITS ETF GBP DIST is the relatively low dividend of 1.96%. I know that if I carefully pick and choose some companies in the FTSE 100 I might be able to get a better yield, however, for my own portfolio, this passive income is good enough.

This is because the fund is so well diversified. It means that if any individual company or sector has a weak period, it should not mean the game over for the entire ETF. In essence, I’m giving up the chance of a higher return for owning multiple companies through a single share.

In truth, this fund is unlikely to make me rich. However, it promises to give me long-term returns from what I hope is a stable asset class. For that reason, it’s a ‘must-have’ passive income pick for my own portfolio for 2022.

The post 1 ‘must-have’ passive income ETF for 2022! appeared first on The Motley Fool UK.

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• The BP share price is on fire! Is there still time to buy?
• £5,000 invested in a FTSE 100 index tracker 3 years ago is now worth…

Niki Jerath does not own any of the shares mentioned. The Motley Fool UK has recommended British Land Co and Landsec. 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.

A ‘set and forget’ ETF

This fund tracks the MSCI World Enhanced Value Index. The index follows medium- and large-sized firms in the developed world. The companies are selected based on three variables: price-to-book value, price-to-forward earnings, and enterprise value-to-cash flow from operations.

I like ETFs as they offer me diversification through owning a single share and this is no exception. Rather than pick individual shares on an ongoing basis, this fund covers a wider variety of countries, firms, and sectors. It also rebalances twice a year meaning that it’s constantly updated. In that respect, the ETF does the heavy lifting for me in terms of buying and selling single stocks.

What’s included?

This ETF is well diversified across sectors and countries. The US accounts for the largest percentage of companies at over 40% of Xtrackers MSCI World Value Factor UCITS ETF. Japan represents the second-largest proportion at just under 25%. Firms from the UK constitute about 10% of the fund. Sectors covered include technology, financial services, and healthcare to name but a few. Companies in the fund include well-known names like Intel, Toyota, and International Business Machines (IBM).

Performance

The performance has been mixed. Year-to-date, the ETF’s share price is down by almost 4%. Also at the time of writing, it’s about 6% off its high this year. However, over the last 12 months it has increased by over 15%.

One drawback of a ‘set it and forget it’ ETF is that I do not get to choose the individual companies myself. Nor when to buy and sell the individual firm’s shares. At the back of my mind, I think that perhaps if I bought and sold the stocks myself, I might outperform this fund.

For example, I’ve been looking at oil and gas stocks for some time now. It’s possible that if I had invested in companies from that sector at the beginning of the year, I would already have a healthy return.

That said, nothing is certain in investing and even if I could time the buying and selling of individual stocks to perfection, there are the transaction costs, which would have chipped away at any return.

All things considered, I think that this really is a ‘set and forget’ ETF. This year seems to be full of uncertainty so far and in such an environment I’m not so confident about timing the market myself. Therefore, for my own holdings, I would be happy to include Xtrackers MSCI World Value Factor UCITS ETF as part of a balanced portfolio.

The post 1 ‘set and forget’ ETF! appeared first on The Motley Fool UK.

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• Prediction: this FTSE 250 10% dividend yield is doomed!
• How much is needed in a SIPP to target a £25,095.20 annual income
• How could the latest Barclays share buybacks impact investors?
• The BP share price is on fire! Is there still time to buy?
• £5,000 invested in a FTSE 100 index tracker 3 years ago is now worth…

Niki Jerath has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

My safe haven hedge against uncertainty

I’ve been holding iShares Physical Gold ETC for some time now. This fund tracks the spot price of gold, but trades like a share so can be bought and sold through most online brokers.

Its place in my portfolio is justified for two reasons. First, gold has long been considered a hedge against inflation. Simply put, inflation decreases the purchasing power of a currency, so you need more currency to buy the same amount of gold.

Second, gold can provide protection against a sudden market downturn. The price of gold is largely seen as negatively correlated with stock prices, since when the market collapses, investors often flock to the asset as a safe haven.

For example, when equity markets see a negative shock, like they did in March 2020, physical assets like gold tend to rise. In fact, looking at 2020 as a whole, the FTSE 100 fell more than 14%. In contrast, gold had one of its best years in a decade.

What could happen to the price of this ETC?

This ETC has been trading since 2011 and since then, I believe there have been a couple of notable stock market falls. During 2018, when the FTSE 100 declined by around 12% in the year, the price of this fund rose by over 3%. Also, during 2020 it increased by almost 20%.

2021 was a good year for stock markets and during the course of the year, this ETC fell by almost 6%. However, 2022 already seems to be shaping up differently and we have already seen a general decline in stock markets. In comparison, iShares Physical Gold ETC has enjoyed a 4% price rise year-to-date. Although I could be wrong, it’s possible that this fund will see further gains.

Worries about inflation, rising interest rates, and escalating geopolitical tensions might well see investors rushing to protect their wealth. This could drive up prices of ‘safe haven’ assets including gold. If so, iShares Physical Gold ETC should also see a price rise.

Nothing is certain, of course. Gold does not pay any dividends and so the return is entirely dependent on the price appreciation of the asset. It’s possible investors might shun the precious metal in favour of alternatives such as high dividend-yielding shares. In this scenario, maybe the price of this ETC will fall.

However, I think the key to building any resilient investment portfolio is diversification and I still think of iShares Physical Gold ETC is one of the best safe haven funds for my portfolio. I’m happy to continue holding a small allocation of it within my portfolio as a hedge against turbulent times.

The post 1 of the best ‘safe haven’ funds to buy right now! appeared first on The Motley Fool UK.

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Niki Jerath owns shares in iShares Physical Gold ETC. The Motley Fool UK has no position in any of the shares mentioned. 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.

The UK’s strong economic outlook

There are reasons to be optimistic for companies doing business in the UK. First, Boris Johnson has just announced the removal of all outstanding Covid restrictions as part of a “living with Covid plan”. This has been greeted with a positive reaction from the hospitality industry and airlines, and is likely to give our economy a boost.

Second, according to a recent report by the International Monetary Fund, the UK’s economy will expand by 4.7% in 2022. This is one of the largest annual increases among the G7 developed nations.

Focussing on the FTSE 250

I think that the index has some good companies in sectors such as travel, leisure, and retail that could make the most of the post-Covid economic recovery over the next few years. Also, whereas some FTSE 100 companies derive a lot of their earnings from outside the UK, a majority of FTSE 250 companies are more reliant on domestic economic conditions. For these two reasons, I see some significant upside potential from the stocks in the index.

Although I could pick individual shares, for my own portfolio, I think the best way of investing is with a FTSE 250 exchange-traded fund (ETF). This allows me to own all the companies in the index by holding just one share.

I’m looking at Vanguard FTSE 250 UCTIS ETF (LSE: VMID) which is a large fund, with almost £3bn in assets under management. It’s well established (around eight years old) and has a low management fee of 0.11%. This fund has both an accumulation and a dividend-paying option. Personally, I like the income stream option and the current yield is 2.55%.

Performance

At first glance, the share price performance of the ETF seems underwhelming. Over the last 12 months, it’s about flat and year-to-date down around 13%. However, most of the decline has been since January and 2022 has been a turbulent time for much of the stock market so far. I prefer to look over a longer time horizon and over the last three years, the fund’s price is up almost 7%.

One of the problems with buying an index is that I can only earn the returns of the FTSE 250. It’s certainly possible that if I could pick the right shares, then I might be able to earn a bigger return. However, I’m comfortable settling for what might be a lower return for the benefit of having greater diversification by owning the index.

Of course, nothing is certain and rising inflation and interest rates could hurt some companies’ earnings. That said, I think that the FTSE 250 has stocks in it that can still perform well in 2022 and I’m seriously considering adding this FTSE 250 ETF to my holdings as part of a balanced portfolio.

The post 1 of the best FTSE 250 ETFs to buy in 2022! appeared first on The Motley Fool UK.

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• How could the latest Barclays share buybacks impact investors?
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• £5,000 invested in a FTSE 100 index tracker 3 years ago is now worth…

Niki Jerath has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

There are three benefits to this kind of investment. First, an ETF allows me to invest in multiple companies by just holding one share. Second, it pays me a regular dividend at certain intervals throughout the year. Third, there’s also the potential for price appreciation of the fund.

My passive income ETF pick

The dividend-paying ETF I’m looking at is one I’ve studied before, iShares FTSE UK Dividend GBP UCTIS ETF (LSE: IUKD). This fund aims to replicate the return of the FTSE UK Dividend + Index by investing in the 50 firms with the highest dividend yields in the FTSE 350.

It has a low expense ratio of 0.4%, good trading volume, and is large. Looking at the firms included shows just how well it’s diversified across industry sectors. For example, established well-known companies like Rio Tinto, National Grid, and Vodafone are just a few of the largest holdings.

One of the main risks in a high-yield fund like this is the dividend trap. Some of these high-paying companies will be mature businesses that are great at generating free cash flows. However, some will feel they have to maintain high dividends to keep their investors happy when the company itself is not growing. In the long run, such companies could falter.

That said, there’s a 5% cap on any individual holding in the fund, which should provide resilience in case any individual company significantly underperforms. 

Long-term income stream

This ETF’s performance has been good, gaining around 20% over the last 12 months and around 5% year-to-date. Despite recent market wobbles, I’m still optimistic about the 2022 outlook for the UK stock market and it wouldn’t surprise me if this fund continues to gain.

The current dividend yield is 5.78%, which is paid quarterly. Though it’s less than some of the best dividend payers in the FTSE 100, it’s good enough for my own portfolio. The trade-off is that I’m giving up the chance of higher returns from individual stocks for the benefit of owning multiple companies through a single share.

No investment is guaranteed, but I’m looking for a simple, long-term, passive income stream. I think buying and holding this fund might be easier for me over the long run than hunting for individual dividend-paying shares. This ETF rebalances each year as the index updates. This means that companies move in and out of the fund automatically, without any input from me.

Therefore, on balance, this passive income ETF is an investment I’d be comfortable keeping for years. I would be happy to consider this for my own holdings as part of a balanced portfolio.

The post 1 passive income ETF to buy and hold for years! appeared first on The Motley Fool UK.

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Niki Jerath has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. 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.

• This ETF tracks nearly the entire UK stock market
• It’s skewed towards larger companies like those in the FTSE 100 
• If the UK economy continues to do well, this fund is likely to perform strongly

I’m a great believer in taking a long-term outlook to investing and am generally optimistic about the UK stock market. Though the flagship Footsie dominates the press, I’m now considering the FTSE All-Share. This consists of the FTSE 100, FTSE 250, and FTSE Small Cap. This is a much broader range of companies, including around 98% of the UK stock market. I think that a fund tracking this index could be one of the best exchange-traded funds (ETFs) for my portfolio in the long run.

There are a lot of funds in this sector, but I’m looking at SPDR FTSE All-Share ETF (LSE:FTAL). This is large in size with over £600m of assets, has a relatively low management charge of 0.20%, and good trading volume. Unusually for me, this is an accumulation fund rather than a dividend-paying one. As this investment is definitely a long-term play for me, it makes sense to take the accumulation option. This automatically invests dividends rather than distributing them. Since I would only re-invest the dividends anyway, this is the cheaper option, as it would cost me fees every time I re-invested them myself.

Still one of the best ETFs for tracking the UK market?

Over 12 months, this fund’s price has increased by around 16%, but year-to-date it has fallen by just over 1%. However, it’s the long-term performance I’m most interested in. Over five years, an increase of almost 25% has been notched up. Over 10 years, it’s closer to 100%.

Of course, in investing, nothing is certain and there are some drawbacks. Firstly, FTAL only tracks UK companies. Although many of the firms will derive some of their earnings from overseas, this fund can’t really be described as geographically diverse. Over the last 10 years, the US stock market has had a fantastic run which this ETF would have missed out on.

Second, by buying an index fund, I can only earn the returns of the index. I think that by picking individual stocks I might be able to outperform it. Third, the larger companies, like those in the FTSE 100, make up a bigger proportion of the ETF. This means those firms have more of an impact on the overall performance of the fund.

However, I’m still a fan. The larger firms are in sectors like banking and traditional energy which could have a great 2022 if interest rates and the oil price continues to rise. Also, it contains around 600 shares, which provides a huge amount of diversification across company size and sectors. Even if one or two of the companies fail, this shouldn’t have a big impact on the fund as a whole. Moreover, I remain bullish on the UK economy in general, which could mean more upside potential to the SPDR FTSE All-Share ETF.

On balance, I think this is one of the best ETFs for investing in UK shares and am happy to consider adding it to my holdings as part of a balanced portfolio.

The post Why this might be one of the best ETFs for investing in UK shares appeared first on The Motley Fool UK.

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• £5,000 invested in a FTSE 100 index tracker 3 years ago is now worth…

Niki Jerath has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

I’ve been keeping my eye on iShares Global Clean Energy ETF (LSE: INRG) for some time now. Overall, it’s had a terrible 12 months and a poor start to 2022. Since last February, the fund’s price is down by around 35% and year-to-date it has fallen by just over 13%. However, I’m looking at whether it might still be a good long-term investment for my portfolio. 

iShares Global Clean Energy ETF

This exchange traded fund (ETF) aims to track the performance of the S&P Global Clean Energy Index. It tracks the performance of companies in the relevant sector, while also taking into account the carbon footprint of these companies.

This fund is large at over $4.5bn, has been going for some time (since 2007) and has good trading volume. I think the ongoing charge of 0.65% is reasonable. It’s also well diversified across countries and renewable energy sectors.

For example, one of its largest holdings is Enphase Energy, accounting for just under 8%. This is a solar energy company, which among other things, produces a critical component converting solar energy into electricity. Another interesting holding is Plug Power. This is a US firm involved in the development of hydrogen fuel cells with the goal of using these to replace batteries, for example in electric cars.

The outlook

Despite the recent poor performance of the price of this ETF, over the long term, I believe there are reasons to be optimistic.

First, I see an increase in the number of holdings in the fund as a good thing. This is primarily because a wider spread of firms should mean the ETF is more robust. If one or two of the companies fail, it shouldn’t hurt it too badly overall.

Second, green energy is likely to be an increasingly important part of global energy production. Finally, this is an ethical investment sector and will probably benefit from government support across the globe over the next decade. Indeed, renewable energy investment is vital if the world is going to achieve the goals of limiting global warming and tackling climate change.

However, there are near-term risks. 2022 might see the continued dominance of traditional energy companies. It’s possible oil and gas prices will rise further especially if the Russia-Ukraine tensions escalate. This is likely to increase the share prices of these firms, whose profits heavily rely on the value of these commodities. In this scenario, we might see money move out from renewable energy stocks like those in this ETF in favour of fossil fuel firms. That is likely to hurt the price of the fund further.

Therefore, for my own portfolio, it’s still too uncertain for me to invest. I’m happy to sit on the fence for the time being and revisit iShares Global Clean Energy ETF in a few months. In the meantime, I will keep looking for other opportunities.

The post Should I buy or avoid iShares Global Clean Energy ETF? appeared first on The Motley Fool UK.

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• How could the latest Barclays share buybacks impact investors?
• The BP share price is on fire! Is there still time to buy?
• £5,000 invested in a FTSE 100 index tracker 3 years ago is now worth…

Niki Jerath has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

• US inflation is at a record high and could result in faster and steeper interest rate rises
• This might be good for the profits of banks and insurance companies
• A financial services ETF can be used to invest in a large number of these firms by holding a single share

As US inflation reaches its highest level in 40 years, some market analysts think that the US Federal Reserve might have to raise interest rates sooner and more aggressively than first thought. Against this backdrop, this fund, focussed on US banks and insurance companies, is one of my best exchange-traded fund (ETF) picks right now.

How financial institutions can benefit

These firms in the finance sector are usually sitting on lots of cash from depositors and from their other business activities. They earn money from taking these funds and either lending them out or investing them.

When interest rates rise, they can benefit in two ways.

First, banks can charge more on loans and mortgages, but don’t usually pay savers much more interest. This means their profits should rise as they collect more money from borrowers than they have to pay depositors. Additionally, higher interest rates tend to reflect a period of greater economic growth. A stronger economy might mean that more consumers seek loans.

Second, financial companies can make more money from investments, such as short-term government debt. US banks tend to invest in Treasury bills (short-term US government debt) and these will now pay more.

A best ETF pick

The ETF I’m looking at is iShares S&P 500 Financials Sector (LSE:UIFS). This fund aims to track the performance of the S&P 500 Capped 35/20 Financials Index. At present this contains 67 holdings, representing the largest US financial services firms.

The largest holding at just under 13% is Berkshire Hathaway. Warren Buffett’s company holds large cash reserves, has sizeable holdings in other banks, and most importantly has a huge insurance business generating massive inflows of money in the form of customer premiums. The second and third largest holdings are JP Morgan Chase and Bank of America, at around 10% and 8% respectively. Both of these are multinational investment banks and financial services companies. 

Over the last 12 months, this fund has performed strongly, increasing over 30%. However, year-to-date performance has been subdued. Because of the general pullback in the financial markets this year, at the time of writing, this ETF is pretty much flat.

This serves as a note of caution for me. Though increasing US interest rates could be bullish for these companies, this fund is not immune to the normal up and downs of the stock market. After all, in investing, nothing is guaranteed.

However, historically periods of increasing interest rates have generally been positive for financial services and that’s why iShares S&P 500 Financials Sector is one of my best ETF picks right now. For this reason, I’m seriously considering adding this fund to my holdings as part of a balanced portfolio.

The post Here’s 1 of my best ETF picks right now! appeared first on The Motley Fool UK.

More reading

• Prediction: this FTSE 250 10% dividend yield is doomed!
• How much is needed in a SIPP to target a £25,095.20 annual income
• How could the latest Barclays share buybacks impact investors?
• The BP share price is on fire! Is there still time to buy?
• £5,000 invested in a FTSE 100 index tracker 3 years ago is now worth…

Niki Jerath has no position in any of the shares mentioned. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool UK has no position in any of the shares mentioned. 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.

Where I’m looking

For my own portfolio, I’m interested in the S&P 500. This is widely considered the most important index in the US. It contains 500 large companies that are selected by a committee. Firms must have a big enough market cap, have at least 10% of shares outstanding and meet liquidity and profitability requirements.

It includes big-name companies such as Microsoft, Apple and Amazon. In terms of industries, the index includes a variety of sectors such as technology, retailers and banking.

One issue is that the index only includes companies from the US. It’s true that many of these companies derive some of their earnings from outside the US, 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 perhaps by picking individual stocks I might be able to outperform it.

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

How much can I earn with an S&P 500 ETF?

Although the index does experience short-term volatility, it has recovered from every crash it’s ever experienced. It’s also earned an average rate of return of around 10% per year since 1957.

By my calculations, assuming a 10% annual return, by investing £50 a month in an S&P 500 ETF for 25 years I’d have close to £70,000.

Of course, I know it might not achieve that return and some believe the S&P 500 is overvalued. Though nothing is certain in investing, I’m hopeful that in the future we might see a strong performance. That’s why I think that by investing consistently over a long period of time, this ETF can be an unstoppable way of building wealth. 

Selecting an ETF

As such an important index and essential barometer of US stock market health, it’s no surprise that there are lots of ETFs available. Most, if not all, of the major investment firms offer such a fund.

The largest one listed in the UK is iShares Core S&P 500 UCITS ETF worth over $57bn. The cheapest one is Invesco S&P 500 UCITS ETF with an ongoing charge of 0.05%.

For my own portfolio, I’ve chosen Vanguard S&P 500 ETF, which takes a middle path in terms of size ($38bn) and costs (0.07%).

I believe that a long-term outlook and giving my money as much time as possible to grow is key to building retirement wealth. I’m going to continue investing as much as I can afford each month into this ETF as part of a balanced portfolio. 

The post 1 ‘unstoppable’ ETF to build retirement wealth! appeared first on The Motley Fool UK.

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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.