How to use the iShares S&P 500 ETF (IVV) to become a millionaire

The iShares S&P 500 ETF (ASX: IVV) is one of the best exchange-traded funds (ETFs) on the ASX in terms of management costs and net returns. I think it’s a wonderful investment to help Australians build towards becoming a millionaire (and more).

The IVV ETF invests in 500 of the largest and most profitable businesses that are listed in the US.

Let’s run through its positives and then I’ll show how it can be used to help reach $1 million.

Low management costs

There are numerous ASX ETFs that Australians can buy. We don’t know what the returns of the funds will be, but costs are likely to play an important part in the net return. The lower the fees the better, as that leaves more of the money in the hands of the investor.

Of course, there isn’t much of an actual difference between 0.05% or 0.10% per year.

But, low-cost ETFs have significantly lower fees than active fund managers, who may charge 1% (or more), plus outperformance fees if they do outperform.

The IVV ETF has an incredibly low management cost of 0.04% per year. That’s one of the cheapest on the ASX, making it very appealing.

Great businesses lead to great returns

In my view, the 500 businesses in the ASX ETF’s portfolio are some of the highest quality that we can find in the global stock market. Many of the US-listed businesses are among the best at what they do. That allows them to capture significant market share, generate strong profit margins and still have good growth potential.

In the portfolio are names like Nvidia, Apple, Microsoft, Amazon.com, Broadcom, Alphabet, Meta Platforms, Micron Technology and Tesla.

Some of the other names further down the list include Berkshire Hathaway, JPMorgan Chase, Visa, Walmart, Costco and Netflix.

Pleasingly, this portfolio has performed extremely well for investors. The IVV ETF has returned an average of 15.5% per year over the prior decade. Of course, past performance is not a guarantee of future performance.

Compelling diversification

While all of the businesses in the portfolio are listed in the US, their underlying earnings come from across the world. Think how many countries around the world have Apple smartphone users, use Google or utilise Microsoft software.

Many of the businesses in the portfolio are truly global businesses, they just happen to be listed in the US. So, I think the underlying earnings of this portfolio are very diversified.

The sectors are fairly diversified, though there is a rising allocation on technology as certain companies become increasingly large.

How to become a millionaire with the IVV ETF

I don’t know what the future returns of the IVV ETF will be, and I’d be surprised if it’s more than 15% per year over the next decade.

But, I think the companies involved could continue to perform well. So, let’s assume the average return per year in the coming years could be 10%.

If someone invested $1,000 per month and it returned an average of 10% per year, that’d turn into $1 million in less than 24 years. If it returned 15% per year, it’d reach $1 million in 19 years.

Each household will have a different financial picture. Perhaps someone can invest $2,000 per month. If the IVV ETF returned an average of 10% per year, an Australian could become a millionaire in less than 18 years. An average return of 15% per year would mean millionaire status in less than 15 years.

Of course, the IVV ETF isn’t the only investment I’d consider to become a millionaire.

The post How to use the iShares S&P 500 ETF (IVV) to become a millionaire appeared first on The Motley Fool Australia.

More reading

• 3 world-class ETFs for Australian investors
• 3 ASX stocks I’d buy during a sharemarket crash
• Can you turn $20,000 into $100,000 with ASX shares?
• 3 ASX ETFs I’d buy to build a portfolio from scratch
• This ASX bank ETF has a 5.2% dividend yield right now

JPMorgan Chase is an advertising partner of Motley Fool Money. 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, Berkshire Hathaway, Broadcom, Costco Wholesale, JPMorgan Chase, Meta Platforms, Micron Technology, Microsoft, Netflix, Nvidia, Tesla, Visa, Walmart, and iShares S&P 500 ETF. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, Netflix, 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.