Why I Bought These 2 Index Funds

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Source: NY Times

While everyone was reacting to the Britain decision to exit the European Union  onThursday night, I took the opportunity to take advantage of the recent pullback in the stock market. Two index fund I had my eyes on was the iShares Core S&P Total U.S Stock Market (ITOT) and the iShares Core S&P 500 ETF index (IVV).

Why are these two index funds are a Buy over the rest of the other great index funds out there?

Here are my three main reasons:

  1. Low fees
  2. Diversification
  3. Brexit effects

Low Fees:

The main reason why I considered iShares Core S&P total U.S stock market and the Core S&P 500 was because of the low fees each one of these index fund offered. The iShares Core total U.S Stock Market has only an fee of 0.03% while the Core S&P 500 only has 0.07% as stated in its prospectus. That means for every $1000 dollars invested, you would only pay 30 cents  per year for ITOT and 70 cents per year for IVV.

That is really ridiculous cheap when you think about it in term of money. Now, what do you get in returns? You get to own a share percentage of each companies within the index fund. No more worrying about following the stock or what are they are doing day ins and outs. ITOT has a dividend yield of 1.95% and IVV has a dividend yield of 2.25% respectively. To look at this in a simpler perspective, if the stock price does not change for the whole year, you would gain about 2 percent a year while paying only 0.03% to own it. Lastly, I considered these two index funds is due to the fact that I have a fidelity brokerage account which cost me nothing in terms of trading commission to acquire these stocks. As Jack Bogle said, the case for indexing isn’t based on the efficient market hypothesis. It’s based on the simple arithmetic of the cost matters hypothesis. In many areas of the market, there will be a loser for every winner so, on average, investors will get the return of that market less fees”. Read more here

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