Similar to several other countries, Canadian residents are wrestling with a cost-of-living crisis. Rent and mortgage payments have risen at a higher rate than incomes in recent years. While average home prices have fallen from peak levels in early 2022, interest rate hikes have driven mortgage payouts higher.
Further, elevated inflation levels have driven the purchasing power of individuals lower at an accelerated pace in the last 18 months.
In order to get through this crisis, the Government of Canada introduced a grocery rebate to provide financial support to eligible Canadians. The rebate was scheduled for July 5 alongside the GST/HST credit payment.
If you are single with no children, you would have received $234, and for a single parent with two children, the grocery rebate increases to $467. Similarly a married couple, the grocery rebate is $306, while for those with two children, it rises to $467.
Invest the grocery rebate in ETFs such as VSP
The grocery rebate may offer you temporary relief and provide you with short-term liquidity. But if you can afford to invest the payout, it’s advisable to buy and hold exchange-traded funds (ETFs) such as Vanguard S&P 500 Index ETF (TSX: VSP).
The VSP aims to track the performance of the S&P 500 index, which consists of the 500 largest companies south of the border. The U.S. is the largest economy in the world, and the VSP ETF provides you with exposure to some of the top blue-chip stocks globally.
The VSP ETF has surged 15.6% year to date and is up 188% in the last 10 years after adjusting for dividends. However, the fund also trades 10% below all-time highs, allowing you to buy the dip. Moreover, the index fund is hedged to the Canadian dollar, which eliminates exchange rate risks for investors.
With a management fee of 0.08% and a management expense ratio of 0.09%, the VSP is among the cheapest ETFs for Canadian investors. It already has $2.57 billion in assets under management and offers investors a dividend yield of 1.2%.
Why should you invest in ETFs?
Investing in ETFs can offer investors diversification and lower overall portfolio risk. Investing in VSP can help you gain exposure to 506 companies at a very low cost. With a median market cap of $253.4 billion, the VSP has a forward price-to-earnings multiple of 23.4 times and price to book ratio of 4.1 times.
Large-cap stocks account for 79.3% of the fund, followed by mid-cap stocks at 18%. The top holdings of VSP include tech giants such as Apple, Microsoft, Amazon, Nvidia, Alphabet, and Tesla, which consists of 24% of the ETF.
Big tech companies enjoy a wide economic moat and are equipped with leadership positions across high-growth verticals such as wearables, cloud computing, e-commerce, artificial intelligence, and electric vehicles.
The information technology sector accounts for 25.8% of VSP, followed by healthcare, financials, consumer discretionary, and industrials at 14.4%, 13.1%, 9.9%, and 8.4%, respectively.
An individual who invested $1,000 in VSP at its inception would see the portfolio value balloon to $3,243, indicating annual returns of almost 12%.
