Could Investing $20,000 in ZSP Make You a Millionaire?

Here’s why buying and holding an S&P 500 index ETF like ZSP could make you a millionaire.

| More on:
exchange traded funds

Image source: Getty Images

Many investors often overlook what is arguably their greatest asset in the realm of investing. It’s not the knack for picking the hottest stock or ETF, nor is it the timing prowess to enter and exit the market at precisely the right moments.

Instead, the most potent weapon in an investor’s arsenal is time, coupled with the power of consistent contributions and the strategic reinvestment of dividends. These elements, when harnessed effectively, can compound even modest sums into substantial wealth over the long haul.

Let’s explore how a disciplined approach to investing in and holding the BMO S&P 500 Index ETF (TSX:ZSP), one of Canada’s most popular ETFs, could potentially escalate your portfolio to the million-dollar mark.

Why invest in ZSP?

ZSP, recognized as the most popular ETF in Canada, boasts $12.5 billion in assets under management for two primary reasons that make it an attractive investment option.

Firstly, ZSP tracks the venerable S&P 500 Index, a benchmark that encapsulates 500 of the largest U.S. companies, carefully selected by the Standard & Poor’s committee.

This index, designed to reflect the performance of the U.S. economy, includes a diverse set of companies across various industries, making it a robust representation of the market’s overall health.

The S&P 500 is renowned for being challenging to outperform, with a historical track record of delivering an average annualized return of about 10%.

Secondly, ZSP is an appealing choice for cost-conscious investors due to its low expense ratio. Since the ETF replicates the S&P 500, it doesn’t incur the high fees associated with active management. With an expense ratio of just 0.09%, the cost of investing $10,000 in ZSP amounts to approximately $9 per year.

An historical example

While ZSP itself has been available to investors since November 2012, we can look to the history of its benchmark, the S&P 500, for a longer-term perspective on the potential impact of a consistent investment strategy.

To understand how investing in a vehicle like ZSP could perform over an extended period, we can refer to a U.S. mutual fund that tracks the S&P 500 as an historical example.

Consider this scenario: starting in 1985, an investor puts an initial sum of $20,000 into the fund and then holds it through thick and thin, reinvesting dividends when received.

This approach, maintained diligently over the years, would have seen the investment grow to over $1.3 million by the present day.

What’s crucial to highlight here is what made this strategy successful. Dividends received from the investment weren’t taken as cash but instead reinvested, buying more shares of the fund, which compounded the growth effect. Equally important was the resolve to hold onto the investment through various market conditions, including bear markets and financial crises.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

Dividend Stocks

The Top Canadian REITs to Buy in April 2024

REITs with modest amounts of debt, like Killam Apartment REIT (TSX:KMP.UN), can be good investments.

Read more »

edit Person using calculator next to charts and graphs
Stocks for Beginners

Where to Invest $7,000 in April 2024

Are you wondering how to deploy the $7,000 TFSA contribution increase in 2024? Here are four high-quality stocks for earning…

Read more »

Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

Some of the smartest buys investors can make with $500 today are stocks that have upside potential and pay you…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

2 Dividend Stocks to Buy in April for Safe Passive Income

These TSX Dividend stocks offer more than 5% yield and are reliable bets to generate worry-free passive income.

Read more »

protect, safe, trust
Dividend Stocks

How to Build a Bulletproof Monthly Passive-Income Portfolio With Just $1,000

If you've only got $1,000 on hand, that's fine! Here is how to make a top-notch, passive-income portfolio that could…

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

CPP Insights: The Average Benefit at Age 60 in 2024

The average CPP benefit at age 60 in average is low, but claiming early has many advantages with the right…

Read more »

edit Sale sign, value, discount

2 Bargains I’d Buy as They Dip Toward 52-Week Lows

Spin Master (TSX:TOY) stock and another underrated Canadian play could surge again as they look to reverse course.

Read more »

Dividend Stocks

Why Did goeasy Stock Jump 6% This Week?

The spring budget came in from our federal government, and goeasy stock (TSX:GSY) investors were incredibly pleased by the results.

Read more »