1 reason I like buying S&P 500 shares – and 1 reason I don’t
As a British investor, the first place I think about when buying shares is the London Stock Exchange. Over the past five years, the flagship FTSE 100 index has gone up 12%. Not bad. Then again, not that good.
After all, across the pond, the S&P 500 index has soared 91% during the same period. Sure, that index has benefitted from strong performance by a few specific tech shares. But even the Dow Jones Industrial Average – a closer equivalent to the Footsie in terms of the mix of companies – is up 57% in that period.
That gives me pause to thought. As an investor from Blighty, ought I to be buying more shares in the S&P 500? I think there are some good reasons for me to consider it — but also some counterarguments.
Here is one pro and one con I see when it comes to me buying into S&P 500 shares.
Going where the big growth opportunities are
This week saw strong results from UK software group Sage, sending its share price soaring. But that also got me thinking about how few options there are as an investor looking to buy into large tech companies on the London market.
Sage is a tech company — but not exactly at the cutting edge of market growth opportunities. It supplies accountancy software to small- and medium-sized businesses. Even after its strong performance this week, the company’s market capitalisation is under £13bn.
Still, an investor who bought into Sage five years ago would be sitting on a 74% return.
But compare that to a tech share I own from the S&P 500, namely Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL).
Its market-cap is over $2trn (around £1.6trn). Over five years, Alphabet’s performance has trounced that of Sage. The Alphabet share price has soared 159% in that period.
Those are just two examples, but I think they point to a larger conclusion. The S&P 500 is stuffed full of tech shares I think are at the cutting edge of innovation.
Alphabet has a cash cow in the form of its search business, though I see a risk of market share loss to platforms like TikTok as well as regulatory concerns, perhaps ultimately forcing a breakup of the group.
But it is also involved in a host of other areas, from its own short form video rival to TikTok (on YouTube) to self-driving vehicles and balloon-based Internet connectivity.
Such a breadth of tech innovation from a large, proven business is simply far easier to find among S&P 500 members than on the London exchange.
Investing like Warren Buffett
But as British retailers from Tesco to Marks and Spencer have found to their expense, the US can be a difficult market to crack.
Firms like Alphabet are US-based multinationals. So I think investing in them benefits from an understanding of the US market, from its regulatory environment to Stateside accounting principles.
Like Warren Buffett, I like to stick to what I can understand when buying shares. So while I am willing to invest in some S&P 500 enterprises, my comfort zone is hunting for bargains in the market I best understand.
Fortunately, right now, I think a lot of UK shares are more attractively valued than their US counterparts!
The post 1 reason I like buying S&P 500 shares – and 1 reason I don’t appeared first on The Motley Fool UK.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. C Ruane has positions in Alphabet. The Motley Fool UK has recommended Alphabet, Sage Group Plc, and Tesco Plc. 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.
