If I had to choose one exchange-traded fund (ETF) to sink all my money into before heading to prison for 20 years, it would be Vanguard S&P 500 Index ETF (TSX:VFV).
Why the prison example? Because it forces you to think about what really works over a long time horizon. Everyone claims to be a long-term investor, yet they can’t resist chasing hot stocks or obsessing over undervalued picks. The truth is, you don’t need to complicate things.
Buy the S&P 500 index, let it do the heavy lifting, and relax. Here’s why VFV is the ultimate “set it and forget it” investment over the long term.
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It’s hard to beat
There’s a longstanding study called SPIVA, short for S&P Indices Versus Active, that measures how actively managed funds stack up against various indexes like the S&P 500.
Here’s the deal: actively managed funds rely on teams of analysts and portfolio managers working to identify which stocks will outperform. On the flip side, an index fund like the S&P 500 is purely rule-based. It’s hands-off, objective, and much cheaper to run.
In the short term, active funds can put up a fight—over a one-year period, only 57.05% of them underperform the S&P 500. But stretch the timeline to 10 years, and that number jumps to a staggering 84.71%. The longer the horizon, the harder it is for active managers to consistently beat the market.
So, if you’re truly a long-term investor—10 years or more—the historical odds are overwhelmingly in favour of an S&P 500 index fund like VFV.
It’s dirt cheap
One big reason actively managed funds lose out over the long term is fees. The returns they report are net of costs, and boy, does active management come with a hefty price tag. Analyst salaries, trading expenses, and portfolio management all add up.
Index funds, however, keep it simple. Fees mainly cover trading costs and licensing fees for the index—way less overhead. And remember, fees compound over time. A 1% annual fee might not sound like much, but over a decade or more, it significantly eats into your returns.
That’s where VFV shines. It charges a rock-bottom management expense ratio of just 0.09%—about $9 a year on a $10,000 investment. That’s a bargain for a fund that tracks one of the best-performing indexes in history.
It’s super simple
Active management can be overwhelming. You’re constantly making decisions—when to buy, hold, or sell; how much to weight a stock; whether to react to the latest earnings report or macroeconomic news. Before you know it, you’re doing a full-time job just to underperform the market.
VFV makes things easy. Is the market up, sideways, or down? Buy VFV. Did you get your paycheck? Buy VFV. Did you receive dividends? Reinvest them in VFV.
If you respond to every piece of market noise with “buy more VFV,” you’re building a habit that sets you up for success over the long haul. It’s as close to autopilot as investing gets.
