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How to invest in the S&P 500 in Canada
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How to invest in the S&P 500 in Canada

Money.ca / Money.ca

Noel Moffatt

By Noel Moffatt

🗓️

Updated: December 02, 2024

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Key takeaways

What you need to know

  • The S&P 500 index represents 500 of the largest publicly traded companies in the US, allowing investors exposure to a diverse range of industries and a critical indicator of market performance
  • Canadian investors can access the S&P 500 through ETFs, index funds or direct investments in US stocks, each method offering unique advantages such as diversification, low costs and trading flexibility
  • While investing in the S&P 500 offers historical performance and diversification, it also carries risks such as concentration in a few large companies and vulnerability to US economic conditions
Buy the VOO S&P 500 ETF with Wealthsimple

Let’s talk about one of the most famous stock market indices — the S&P 500. 

You’ve probably heard of it. It’s basically the scoreboard for the US economy and stock market. It tracks the performance of 500 of the biggest publicly traded companies in the US. So when the S&P 500 has a good day, that’s a win for a huge chunk of the market.

But here’s the thing — these 500 companies aren’t picked out of a hat. They’ve got to meet some pretty strict requirements to make it into this club — such as having a minimum market cap of $14.5 billion and at least 10% of their shares available for public trading. 

It’s like an elite “best of the best” roster, but for businesses.

The index has been around since 1957, and get this — it represents about 80% of the entire US stock market’s value. So, it’s not just a random slice of the pie; it’s actually most of the pie.

So why do people care about the S&P 500 so much? Besides being a solid way to see how the market is doing, overall, it’s a benchmark. Investors use it to check if their portfolios are keeping up. (Spoiler alert: Beating the S&P 500 is tough!) Plus, lots of mutual funds, ETFs and other investment products aim to mirror its performance.

The big players and key sectors

The S&P 500 isn’t just a random collection of companies — it’s a who’s who of industry giants. 

Some of the heavy hitters in the lineup include:

  • Apple (AAPL): Phones, computers, software
  • Amazon (AMZN): Online shopping, cloud computing and AI
  • Microsoft (MSFT): Software, cloud services and AI innovation
Track all markets on TradingView

These companies are often called “mega-caps” because they’re not just big — they’re massive and their performance carries a lot of weight in how the entire index moves.

But it’s not just tech — this index spans all sorts of industries. Some other key sectors include:

  1. 1.

    Tech titans: Companies like Microsoft, Apple and Alphabet (Google’s parent company) dominate this space, driving innovation and market growth

  2. 2.

    Healthcare heroes: Think Johnson & Johnson and Pfizer — pharma and biotech giants that are shaping the future of medicine

  3. 3.

    Financial powerhouses: Banks, investment firms and insurance players like JPMorgan Chase and Goldman Sachs

This mix of companies across different sectors is why the S&P 500 is such a reliable snapshot of the US economy. If one sector is struggling, others might pick up the slack — giving you a more balanced picture of how things are really going.

Why Canadians should consider investing in the S&P 500

Alright, my fellow Canadians, let’s talk about why the S&P 500 may just be the investment move you’ve been missing, because the S&P 500 isn’t just for Americans. 

Including a portion of the S&P 500 in your portfolio can offer significant advantages, from enhanced diversification to substantial long-term growth potential.

Let’s dive in.

  • Diversification benefits:

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    If there’s one word you’ll hear thrown around in investing circles, it’s diversification. (Check out How to diversify your portfolio with asset classes)

    But here’s the thing — it’s not just buzzword fluff. The S&P 500 gives you access to 500 of the biggest, most successful companies in the US, covering industries such as tech, healthcare, finance and consumer goods. Translation? You’re not putting all your eggs in one basket.

    ◦ Broad market exposure: Investing in the S&P 500 provides exposure to a wide range of companies and industries, including some of the biggest names such as Apple, Amazon and Johnson & Johnson — all in a single investment.

    ◦ Reduced company-specific risk: If one company in the index has a rough day, no big deal because you’ve got 499 others picking up the slack. Compare that to buying a single stock — one bad quarterly report and you're in trouble.

    And let’s be honest, building this kind of exposure in the Canadian market alone is tough. Our market tends to skew heavily toward banks and resource companies. So, the S&P 500 adds a much-needed splash of variety to your portfolio.

  • Long-term growth

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    The S&P 500 isn’t just about diversification, it’s also a driver of growth. Historically, it’s delivered an average annual return of around 10% before inflation, which is a pretty solid track record, especially if you’ve got a long-term horizon.

    ◦ Compounding returns: If you reinvest your dividends over time, the magic of compounding will work wonders as your money starts making money on its money, and, well, you get the picture.

    ◦ Market leadership: As discussed earlier, The S&P 500 includes some of the world’s most innovative and profitable companies such as Apple, Microsoft and Amazon. But these giants don’t just dominate their sectors, they often lead global trends. So by investing in the S&P 500, you’re hitching your wagon to companies that know how to grow.

  • Currency considerations

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    Here’s where it gets a little interesting for Canadians: The S&P 500 is in US dollars, which introduces an element of currency risk and opportunity for Canadians. But don’t panic — this can actually work in your favour.

    ◦ Potential for currency gains: If the Canadian dollar weakens against the U.S. dollar, your U.S.-denominated investments get a boost when you convert back to CAD.

    ◦ Built-in currency diversification: Holding assets in US dollars can be a nice hedge against the ups and downs of the loonie. If the Canadian economy stumbles, your US investments might help steady the ship.

    Not a fan of dealing with currency risk? That’s no problem as there are ETFs with currency-hedged options that smooth out the ride. But for those willing to roll with it, US exposure can be a powerful addition to your investment strategy, especially considering how influential the US economy is globally.

How to invest in the S&P 500 in Canada

Ready to gain exposure to some of the biggest companies in the US and diversify your portfolio? 

Here's how you can start investing in the S&P 500 in Canada, step by step.

1. Choose a brokerage account

The first step to investing in the S&P 500 is opening a brokerage account that supports US markets. Here are some top options for Canadian investors:

  • Questrade: Known for its commission-free ETF purchases and low trading fees, it’s ideal for both beginners and experienced investors.
  • Wealthsimple: A beginner-friendly platform with commission-free trading for Canadian and US stocks and ETFs. Currency conversion fees apply for US trades, but you can use Wealthsimple’s Plus account to reduce costs.
  • Interactive Brokers: Offers access to global markets with some of the lowest commissions, making it great for active traders or those investing in large volumes.

When signing up, have your ID (passport or driver’s license) and banking information handy to make the process smooth.

Questrade Wealthsimple Interactive Brokers
Questrade logo Wealthsimple logo Interactive brokers logo
◦ Stock trades range from $4.95 to $9.95 per transaction; ETF purchases are free, but sales incur the same fees as stocks.
◦ Offers a comprehensive platform suitable for both beginners and experienced investors, with access to various account types and investment products.
◦ Allows holding both CAD and USD in registered accounts, facilitating cost-effective trading of U.S. securities without frequent currency conversions. 		◦ Provides commission-free trading for stocks and ETFs listed on major Canadian and U.S. exchanges, appealing to cost-conscious investors.
◦ Features a user-friendly mobile app with a straightforward interface, ideal for new investors seeking simplicity.
◦ Charges a 1.5% fee on CAD to USD conversions, as accounts are CAD-denominated, impacting those trading U.S. securities. 		◦ Offers a tiered commission structure with low per-share fees, benefiting high-volume traders.
◦ Provides sophisticated trading platforms and tools, catering to experienced and active traders seeking comprehensive functionalities.
◦ Enables trading across numerous international markets, appealing to investors interested in a diverse, global portfolio.
Visit Questrade Visit Wealthsimple Visit Interactive Brokers

2. Fund your account

Once your account is set up, you’ll need to add funds to start investing. Canadian brokers offer several funding options:

  • Bank transfer: The most straightforward and often fee-free method
  • Direct debit or pre-authorized deposit: A convenient way to fund regularly
  • Wire transfer: Best for larger sums, though it may involve fees

Currency conversion tip: Since the S&P 500 consists of US stocks, your funds may need to be converted to US dollars. Questrade and Interactive Brokers offer competitive forex rates, while Wealthsimple’s Plus plan allows you to hold USD in your account to avoid frequent conversion fees.

3. Buy an S&P 500 ETF or index fund

Now here’s where the magic happens — you’re ready to purchase an S&P 500 ETF or index fund.

Search for an S&P 500 fund

Log into your broker’s platform and search for popular S&P 500 ETFs, such as:

  • Vanguard S&P 500 ETF (VOO): Low-cost and widely traded
  • iShares Core S&P 500 ETF (IVV): Another reliable, cost-effective option

If you prefer mutual funds, look for options like the Fidelity 500 Index Fund (FXAIX).

Choose your order type

When buying an S&P 500 ETF or mutual fund, you’ll have two main order types:

  • Market order: Buys the ETF or fund at the current price, ensuring immediate execution.
  • Limit order: Allows you to set a maximum price you’re willing to pay. The order executes only if the price meets your set limit.

Decide your investment amount

Choose how much you want to invest in the S&P 500. You have two options:

  • Full shares: Purchase entire units of the ETF or fund for a larger investment
  • Fractional shares: Investing smaller amounts by buying portions of a share, also known as fractional shares, is an option available on platforms such as Wealthsimple

Once you’ve made your decision, click “Buy,” and congratulations — you’re now an investor in one of the world’s most influential market indices!

Best S&P 500 ETFs for Canadian investors

Popular ETFs tracking the S&P 500

If you’re a Canadian investor looking to tap into the S&P 500, there are plenty of great ETFs from which to choose. Here are some of the most popular options:

  • Vanguard S&P 500 ETF (VOO): Known for its rock-bottom expense ratio, this ETF is a cost-effective way to track the S&P 500 closely
  • SPDR S&P 500 ETF Trust (SPY): One of the biggest and most liquid ETFs out there, offering seamless broad market exposure
  • iShares Core S&P 500 ETF (IVV): Combines efficient index tracking with a low expense ratio, making it another top contender
Track all markets on TradingView

All of these ETFs trade on US exchanges, so you’ll need a Canadian brokerage account that supports US dollar transactions to buy them. If you’re okay with managing currency conversions, these options are hard to beat.

Currency-hedged ETF options

Worried about the CDN-USD exchange rate throwing a wrench in your returns? Currency-hedged ETFs are here to save the day.

  • iShares Core S&P 500 CAD-Hedged ETF (XSP): This ETF uses currency hedging to neutralize the effects of US dollar fluctuations, aiming to mimic the S&P 500’s performance without exchange rate drama
Track all markets on TradingView

Currency-hedged ETFs can be especially helpful if you think the Canadian dollar may weaken against the US dollar. They offer a layer of protection, though you’ll pay a bit extra for it in fees.

Comparing fees and dividend yields

When selecting an S&P 500 ETF, it's crucial to consider expense ratios and dividend yields, as they directly affect net returns:

  • Expense ratios: Lower expense ratios mean more of your investment remains invested, enhancing compounding over time. For instance, VOO and IVV both have expense ratios of 0.03%, making them cost-effective choices.
  • Dividend yields: Dividends contribute to total returns. As of November 2024, the S&P 500's dividend yield is approximately 1.18%, its lowest in over two decades, reflecting lower income returns despite overall growth1.

Factors to consider when choosing S&P 500 funds

  • Expense ratio

    +

    Let’s talk about fees. The expense ratio is what a fund charges you annually to manage your money.

    While it might sound like a small number, it can make a big difference over time. Lower expense ratios mean fewer costs eating into your returns, so more of your money stays where it belongs — working for you.

    Take Vanguard’s S&P 500 ETF (VOO), for example, with an expense ratio as low as 0.03%. That’s about as cost-efficient as it gets.

  • Dividend yield

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    Dividends are a key part of the total return package for S&P 500 funds. Some funds reinvest dividends, giving your investment that sweet compounding boost. Others pay them out, providing a reliable income stream. It all depends on your financial goals, but checking the dividend yield can help you decide if the fund aligns with your plan.

  • Trading volume and liquidity

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    Here’s one for the more active investors: trading volume. Funds with higher trading volumes, such as SPDR S&P 500 ETF (SPY), tend to have better liquidity.

    Translation? You can buy and sell quickly without worrying about affecting the price too much. If you’re someone who likes to make frequent trades, this is a big plus.

  • Currency hedging

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    Canadian investors, this one’s for you. Currency hedging is all about managing the CDN-USD exchange rate and whether you want that risk on or off the table.

    ◦ Hedged funds: These protect you from currency swings, giving you more stable returns. But this usually comes at a higher cost.

    ◦ Unhedged funds: No protection here—you’re exposed to currency risks. But if the US dollar strengthens, it could work in your favour.

Additional ways to invest in the S&P 500

1. S&P 500 mutual funds

For Canadians looking to keep things simple, S&P 500 mutual funds are a solid choice. These funds track the index and provide an easy, passive way to match its performance. 

The downside? Unlike ETFs, mutual funds only get priced at the end of the trading day, so you lose a bit of flexibility if you like to trade during market hours. 

Options like the Fidelity 500 Index Fund (FXAIX) or the TD U.S. Index Fund are popular picks but they do tend to have slightly higher fees than ETFs, but for long-term, hands-off investors, they’re worth considering.

2. Robo-advisors

Enter robo-advisors — investing on cruise control.

Platforms such as Wealthsimple and Questrade Portfolio IQ include S&P 500 ETFs in their managed portfolios, making it ridiculously easy to get started. They handle all the heavy lifting, from rebalancing your portfolio to diversifying across assets, based on your goals. 

For something even more laser-focused, there’s Moka, which invests your savings exclusively in the S&P 500. It’s simple, affordable and takes the guesswork out of getting exposure to the index.

3. Individual stocks

Want to take the reins? Buying individual stocks within the S&P 500 gives you full control. You can pick and choose your favourites — Apple, Netflix, Tesla, Nvidia Amazon, Microsoft, you name it. 

But let’s also be real and transparent here: This approach isn’t for the faint of heart. It takes time, research and a willingness to stomach higher risk since you won’t have the built-in diversification that comes with funds. If you’re experienced and have the time to monitor your investments closely, this strategy could work. Otherwise, sticking with funds might save you a few headaches.

So whether you’re into mutual funds, robo-advisors or hand-picking stocks, there’s no one-size-fits-all answer. It’s about finding what works for your goals, experience level and risk tolerance.

Pros and cons of investing in the S&P 500

Pros

Pros

  • Exposure to top US companies: Investing in the S&P 500 gives you access to some of the most influential and successful companies in the world. We're talking about heavyweights like Apple, Microsoft and Amazon — the big players driving global innovation and profits.

  • Broad diversification: With one investment, you get exposure to 500 companies across a wide range of sectors and industries. This built-in diversification helps reduce the risk of your portfolio being dragged down by the poor performance of any single stock.

  • Strong historical performance: The S&P 500 has proven itself over time, delivering consistent long-term growth. With an average annual return of around 10% before inflation, it’s a reliable option for investors looking to build wealth over the years.

Cons

Cons

  • Limited to US large-cap stocks: While the S&P 500 is a powerhouse, it only includes large-cap US companies. That means you miss out on smaller companies and international markets, which can also be sources of strong growth opportunities.

  • Currency risk: For Canadian investors, investing in the S&P 500 means exposure to the CDN-USD exchange rate. Fluctuations can either boost your returns or work against you — it all depends on which way the currency winds blow.

  • Overexposure to top-performing tech stocks: A handful of dominant tech giants — such as Apple, Microsoft, and Alphabet — heavily influence the index. While they’ve been driving stellar returns lately, this concentration could pose a risk if the tech sector faces a downturn.

FAQ

  • How much does it cost to invest in the S&P 500?

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    S&P 500 ETFs typically cost 0.03% to 0.10% in expense ratios, while mutual funds cost 0.10% to 0.20%. Some platforms, such as Questrade, offer commission-free ETF purchases.

  • What’s the difference between S&P 500 ETFs and mutual funds?

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    ETFs trade throughout the day like stocks, while mutual funds are priced once daily. ETFs often have lower minimum investments and higher liquidity than mutual funds.

  • Do S&P 500 ETFs pay dividends?

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    Yes, S&P 500 ETFs pay dividends, distributing the income earned from companies in the index, typically on a quarterly basis.

  • Is now a good time to invest in the S&P 500?

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    Using dollar-cost averaging to invest consistently over time reduces market timing risk. The S&P 500’s historical growth makes it a strong long-term investment.

  • sources

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    1.https://www.barrons.com/articles/s-p-500-low-dividend-yield-3879960f

Noel Moffatt Writer

Noel Moffatt is a Canadian fintech expert with a passion for simplifying personal finance. Based in St. John’s, NL, he draws on his background in finance, SEO, and writing to deliver clear explanations and actionable advice. Noel is dedicated to equipping readers with the knowledge and tools they need to make informed financial decisions, striving to make personal finance more accessible and understandable through his in-depth articles and reviews.

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