Embracing a laid-back approach to investing can actually be your secret weapon to building wealth. Often, we become our own greatest obstacle, giving in to the impulse to constantly tinker with our investments.
This can lead to attempts at timing the market, selling in a panic, or putting too many eggs in one basket, all of which are strategies that can backfire.
If you’re looking for a way to grow your investments in the stock market while barely lifting a finger, an S&P 500 index fund is an excellent choice. This type of investment sidesteps the common pitfalls of active investing, offering a straightforward path to wealth accumulation.
Let’s look at the reasons why this approach works so well and introduce you to an ETF that embodies this investment philosophy.
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Why the S&P 500?
The S&P 500 has long stood as a hallmark of the American stock market, tracing its origins back to 1957. This index is home to 500 publicly traded companies in the U.S., spanning both the large-cap and mid-cap sectors.
These companies are meticulously chosen based on specific criteria and the decisions of a dedicated committee, which ensures the index is a comprehensive representation of the U.S. economy.
Often referred to as the gold standard for measuring U.S. stock market performance, the S&P 500’s track record is tough to beat. To put this into perspective, consider findings from the latest SPIVA (S&P Indices Versus Active) report.
This study reveals that over the past 15 years, a staggering 88% of all U.S. large-cap mutual funds fell short of outperforming the S&P 500. This statistic is a testament to the difficulty of beating the index, even for professional fund managers whose full-time job is to analyze and pick stocks.
Given this, it’s reasonable to suggest that the average individual investor might find it even more challenging to outperform such a benchmark.
How to invest in the S&P 500
For Canadians looking for a straightforward approach to investing in the S&P 500, one efficient route is through purchasing shares of an exchange-traded fund (ETF) such as BMO S&P 500 Index ETF (TSX: ZSP), just as one would with any standard stock.
This particular ETF mirrors the composition and performance of the S&P 500 by holding the same assortment of stocks, ensuring that investors can closely track the index’s movements and returns.
One of the appealing aspects of ZSP is its affordability, featuring an expense ratio of just 0.09%. This means that for an investment of $10,000 in ZSP, the annual fees would amount to a mere $9.
This low-cost structure makes it an attractive option for investors aiming to gain exposure to the broad U.S. market while minimizing investment expenses.
But if you really do want to try picking some stocks, consider a middle ground – for example, making ZSP 90% of your portfolio, while reserving the remaining 10% for some Canadian blue-chip dividend stock picks (and the Fool has some great ideas down below!)
