Which S&P 500 ETF is the best to invest in?


Disclaimer: Please note that all content and information in this blog are for educational and informational purposes only and should not be taken as professional investment advice.

──────────────────

With the S&P 500 breaking record highs, many investors want to have a share of the gains. However, with some many ETFs (Exchange-Traded Funds) tracking the S&P 500, many are often unsure which to invest in. Personally, when deciding which S&P 500 ETF is the best one for us to invest in, I believe we should consider the following factors:

1. Accumulating Nature
2. Liquidity (Trading Volume)
3. Expense Ratio
4. Estate & Withholding Taxes
5. Currency

Other considerations
1. Tracking Error
2. Price

At the end of this article I will also conclude which ETF I personally believe is the best to invest in, but do note that this could vary between individual investor preferences and risk appetites. There is technically no absolute best ETF to invest in as it will ultimately depend on each individual's needs and circumstances.

1. Accumulating Nature
Firstly, accumulating ETFs outperform distributing ETFs because no dividends are paid out. Instead, the dividends are automatically reinvested in the ETF, allowing the dividends to compound our returns for us. It also saves us on the ~30% dividend tax that is levied on US listed equities or ETFs.

2. Liquidity (Trading Volume)
Secondly, an ETF with high trading volume is more liquid which will allow us to liquidate our positions easily without comprising on market value. A liquid ETF like the SPY will enable us to quickly liquidate our positions at market price since the spread is narrower. 

The spread is the difference between the bid and ask price. The smaller the spread, the better it is for investors as it means the asset is more liquidity with a much higher trading volume. Do note that liquidity is generally less crucial and is more relevant only if you have a sizeable portfolio or do regular trading.

3. Expense Ratio
Thirdly, expense ratio is basically the cost of managing and running the portfolio, consisting of administrative fees as well as fees for the ETF manager. So, the lower the expense ratio, the better managed and more efficient the ETF is.

4. Estate & Withholding Taxes
This would primarily affect foreign investors in US ETFs because estate taxes are payable on assets in excess of US$60,000 which is a relatively low quantum compared to the amount for US citizens. While withholding taxes apply to foreign investors only. To mitigate this, investing in an Ireland-domicilied US ETF is the recommended approach to avoid incurring the high estate or withholding taxes in US that are typically much lower or even non-existent in Ireland.

5. Currency
This last factor is often a personal preference depending on which currency you require or are comfortable holding. Personally, I prefer to hold everything in SGD as it is one for the world's strongest and most stable currency.

Some other considerations include the tracking error and price of the ETF. Typically the lower the tracking error the better the ETF, because it means that it more accurately replicates the index it is tracking. This is usually not an issue as long as the ETF is large enough for the ETF managers to better manage it. 

Lastly, price. It is often not an issue since fractional shares is an option nowadays. But some investors prefer a lower price for the ETF to make it more easily traded as well as allowing them to buy up more shares even with limited capital.

In conclusion, I personally believe the CSPX ETF is the best US ETF tracking the S&P 500 Index. It almost ticks all the boxes covered: it is accumulating, extremely liquidity, very low expense ratio, Ireland-domicilied, low tracking error and a reasonable price. While each of us have varying needs, the CSPX meets most of the criteria needed for a US ETF.

The only downside is that it's only offered in USD, not SGD. Apart from that, it is an almost perfect US ETF to invest in.

──────────────────

Disclaimer:
The content and information provided on this blog is solely for educational and informational purposes, and should not be construed as financial advice. The accuracy or completeness of the content and information provided in the blog cannot be guaranteed. Before making any investment decisions, it is important for readers to research and carry out independent verification of the information provided, or consult with a qualified financial professional. No warranty and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of actions taken based on the ideas or information found in this blog.

No copyright infringement intended. The images used in this blog are solely for educational and informative purposes, and are © copyrighted by their respective owners.

Copyright © 2024. All rights reserved. SN Finance Blog



Comments

Post a Comment

Popular posts from this blog

How to avoid losing money during market crashes?

Image
Disclaimer: Please note that all content and information in this blog are for educational and informational purposes only and should not be taken as professional investment advice. ────────────────── The market will only crash when something unexpected and bad happens. If the bad news is expected, the market would have priced it in. But if it is unexpected, the market will react with a sudden sell-off. Prices will remain depressed as long as the market is not convinced that the worst is over. Once the market is convinced the worst is over, markets will rebound and rally. As investors, we want to get in before the majority. Staying ahead of the masses is critical to achieving above average returns. And we can do that in 2 ways: 1. Stay invested 2. Invest in panic By staying invested, you are way ahead of those who are either not invested or have yet to invest. By investing in panic, you are doing what the majority isn't, and that will deliver above average returns, assum...
Read more

Money is made during uncertainty

Image
Disclaimer: Please note that all content and information in this blog are for educational and informational purposes only and should not be taken as professional investment advice. ────────────────── Money is not made in certainty but during uncertainty  To invest in uncertainty is to invest when few are. This inevitably means you'll get a better deal. And better deals translate into better returns. People enjoy certainty, and as such are willing to pay a premium for it. Nothing comes free.  If you like certainty and stability, you have to pay for it. Therefore during times of economic stability and certainty, equities demand a higher premium. Conversely, if you're fine with accepting uncertainty, you'll get a much better price.  The market discounts uncertainty because it dislikes uncertainty. Now the question is whether you value certainty or your money more. If you're fine with uncertainty, you're rewarded with lower prices.  If you're uncomfortab...
Read more

You Can't Go Wrong With $1

Image
Disclaimer: Please note that all content and information in this blog are for educational and informational purposes only and should not be taken as professional investment advice. ────────────────── Recently at a fruit shop at a wet market, I got some fruits from the discount pile. $1 for 11 mangoes, $1 for 13 persimmons, and $1 for 3 bunches of bananas. I think it's a really good deal, but not everyone did. While many saw the discount pile, few bothered looking twice. It's unsurprising as the fruits weren't in great shape — mangoes were blemished, persimmons dented, and bananas split. In short, unappealing to many. But one man's trash is another man's treasure — this turned out to be really true.  The fruits were great not just because there were cheap but because they actually tasted good — sweet, juicy, fragrant, and they lasted me over a week which was unexpected.  All in all, while 1-2 mangoes were rotten, the rest were fine. Was it surprising? Yes...
Read more