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How to invest in the S&P 500 in Canada
Ways to invest in one of the world's most popular stock indices from Canada.
Billionaire investor Warren Buffett has said “for most people, the best thing to do is to own the S&P 500 index.” So what is the S&P 500 and how do you invest?
How to invest in the S&P 500 in Canada
- Choose a trading platform. Compare things like fees and tradable assets. For example, if you want to invest in an S&P 500 mutual fund, make sure the broker you choose offers mutual fund investing.
- Open and fund an account. Complete an application with your personal details and link a bank account for funding.
- Research investment options. Find the stock, ETF or mutual fund by name or ticker symbol and research it before deciding if it’s a good investment for you.
- Purchase the security. Buy your desired number of shares with a market order or use a limit order to delay your purchase until the stock reaches a desired price.
- Monitor your investment. Periodically check on your investment to make sure it’s aligned with your objectives.
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What is the S&P 500?
The S&P 500 is a market capitalization-weighted stock market index of over 500 leading US companies in the most prominent industries of the US economy, traded on either the New York Stock Exchange (NYSE) or Nasdaq.
The index was first introduced in 1957. Today, the S&P 500 covers approximately 80% of available market cap and is widely regarded as the best single measure of US stock market performance.
What companies are in the S&P 500?
The S&P 500 includes some of the most recognizable and popular stocks in the world. The top ten constituents make up nearly 27% of the entire S&P 500, with Apple alone representing 6% of the total index. This is why when Apple is down, the entire index feels it. The top 10 constituents of the S&P 500 by index weight as of November 30, 2022, are:
| Constituent | Sector | Buy Stock |
|---|---|---|
| Apple (AAPL) | Information technology | Invest with National Bank Direct Brokerage |
| Microsoft (MSFT) | Information technology | Invest with National Bank Direct Brokerage |
| Amazon.com (AMZN) | Consumer discretionary | Invest with National Bank Direct Brokerage |
| Alphabet A (GOOGL) | Consumer discretionary | Invest with National Bank Direct Brokerage |
| Berkshire Hathaway B (BRK-B) | Financials | Invest with National Bank Direct Brokerage |
| Alphabet C (GOOG) | Communication Services | Invest with National Bank Direct Brokerage |
| Tesla (TSLA) | Communication Services | Invest with National Bank Direct Brokerage |
| Unitedhealth Group (UNH) | Health care | Invest with National Bank Direct Brokerage |
| Johnson & Johnson (JNJ) | Health care | Invest with National Bank Direct Brokerage |
| Exxon Mobil Corp (XOM) | Energy | Invest with National Bank Direct Brokerage |
Historical performance of the S&P 500
Closing prices are in USD.2 ways to invest in the S&P 500
You can’t invest directly in the S&P 500, as it only tracks the performance of its constituent stocks. But there are a couple ways you can invest in S&P 500 companies.
1. Buy an index fund that tracks the S&P 500
The easiest way to invest in the S&P 500 is to invest in either an exchange-traded fund (ETF) or mutual fund that tracks the S&P 500. Funds that track an index like the S&P 500 are known as index funds.
Index funds are designed to track the performance of and achieve approximately the same return as an underlying index, in this case the S&P 500. S&P 500 index funds will have exposure to the top constituents — Apple, Microsoft, Amazon, etc. These funds are a great way to add instant diversification to your portfolio at a low cost.
Since most S&P 500 index funds should in theory achieve nearly similar returns, a fund’s performance may not be the most important factor when deciding which to invest in. Investors should pay closer attention to expenses, which are what will vary the most between funds.
Here some of the lowest-cost S&P 500 index funds
| Fund | Expense ratio | Fund type |
|---|---|---|
| Fidelity 500 Index Fund (FXAIX) | 0.015% | Mutual fund |
| Schwab S&P 500 Index Fund (SWPPX) | 0.020% | Mutual fund |
| iShares Core S&P 500 ETF (IVV) | 0.03% | ETF |
| SPDR Portfolio S&P 500 ETF (SPLG) | 0.03% | ETF |
| Vanguard S&P 500 ETF (VOO) | 0.03% | ETF |
| Vanguard 500 Index Fund Admiral Shares (VFIAX) | 0.04% | Mutual fund |
2. Buy S&P 500 stocks individually
An alternative way of investing in the S&P 500 is to buy individual stocks in companies listed in the index. This would mean buying and owning individual shares of the FAANG companies like Facebook (Meta), Apple, Amazon and so on.
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Compare trading platforms to invest in the S&P 500
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Is now a good time to invest in the S&P 500 in Canada?
Historically, the S&P 500 has had an average annual compounded return of 7.5%. Since 2009, the index has been profitable every year up to 2019 except for 2018.
However, with inflation, rising interest rates and economic instability concerning investors, the S&P 500 will mimic what the overall market is doing. Remember that the S&P 500 tracks large cap U.S. companies, so if the overall U.S. (and global) economy is down, indices that track the market will be as well. There is no way to earn above-average returns.
However, economic dips are temporary and S&P 500 ETFs are focused on the long game. While no investments are immune to market downturns, S&P 500 ETFs are more likely to bounce back from these temporary downturns. Historically, the index has bounced back from every crash, bear market, and recession in history. So, no matter what’s to come, you can feel confident that investments that track the index will eventually recover.
Why should I invest in the S&P 500 index from Canada?
- Access. The S&P 500 features some of the largest and most successful companies in the world and has historically given investors a decent return on their investment. In order for a stock to be considered for the S&P 500 it must have a market cap of at least $14.6 billion.
- Diversification. Investing in the S&P 500 allows you to gain exposure to 500 different companies at once, which diversifies your portfolio. Diversification is important because if one stock in the index drops, your entire portfolio doesn’t necessarily drop too.
- Convenience. The index itself aims to track the market, which makes it a convenient way to diversify your portfolio without having to buy and sell a number of individual stocks.
Keep in mind that the stocks in the index are all large, household name companies, which opens you up to the potential gains offered by large U.S. stocks. However, since the index is comprised of entirely U.S. companies, your portfolio will take a hit if the U.S. economy (and likely the global economy) suffers.
Pros and cons of investing in the S&P 500
Pros
- Exposure to America’s leading companies. Gain exposure to America’s most influential companies, including Apple, Microsoft, Amazon and Tesla with a single purchase.
- Instant diversification. Buying a single share of an S&P 500 index fund will give you exposure to 500 companies, immediately diversifying your portfolio.
- Competitive long-term performance. The S&P 500’s average annual returns over the past decade have come in at around 11.16% (data as of November 30, 2022).
- Ease of investing. Unless you’re buying up individual stocks, buying shares of an S&P 500 index fund limits the amount of time you need to spend researching and gets you in the market quicker.
Cons
- It includes only US companies. The S&P 500 includes only stocks of US companies and excludes companies in other parts of the world.
- It includes only large-cap companies. The S&P 500 includes only large-cap stocks, so you won’t gain any exposure to small-cap or mid-cap stocks, which tend to grow at faster rates than their large-cap counterparts.
Bottom line
- Investing in the S&P 500, specifically an S&P 500 index fund, is a great way to diversify your portfolio and grow steady wealth over time.
- Investing in the S&P 500 is a great option for individual investors of any experience level.
- Make sure you compare the best investment platforms to figure out which one is best for you.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.
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