A lot of investors, especially beginners, underestimate just how powerful compounding can be. Stocks don’t just sit there; they work for you in multiple ways.
Companies grow their earnings, pay dividends, and buy back their own shares. Growing earnings and dividends give you more income to reinvest in even more shares, creating a snowball effect over time. Share buybacks quietly make your ownership stake more valuable without you lifting a finger.
These two forces working together can build serious wealth, but only if you give them enough time to work.
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The S&P 500: How it works and why it wins so often
The S&P 500 is a stock market index that holds 500 of the largest publicly traded companies in the United States. It’s market cap weighted, which means the largest companies get the biggest weighting.
That structure is “self-cleaning” — companies that fall behind lose weight in the index, and successful ones rise to the top. Every year, underperformers get swapped out for stronger businesses, so the index always reflects many of the market’s leaders.
This isn’t just theory. Over long periods, the S&P 500 has been incredibly hard to beat. A majority of professional fund managers (89%) fail to outperform it over 15 years or more.
How to invest through ZSP
If you want to own the S&P 500 from Canada, BMO S&P 500 Index ETF (TSX: ZSP) is one of the simplest ways to do it. For a 0.09% management expense ratio, you get direct exposure to the entire index.
From January 29, 1993, to August 13, 2025, a $10,000 investment in an S&P 500 index fund, reinvesting all dividends and before taxes, would have grown at a 10.59% compound annual growth rate, producing a 2,546.54% cumulative return.
That’s enough to turn $10,000 into $264,653.77 without having to pick a single stock or make a single trade.
The Foolish takeaway
Compounding is most powerful when you give it time and fuel it with regular contributions. The more you invest early, and the longer you leave it alone, the more exponential your results become. That’s why starting with even $1,000 today can matter so much decades from now.
You don’t need to chase speculative plays or time the market perfectly. Put your money into a low-cost, broad-market exchange-traded fund like ZSP, reinvest your dividends, and keep adding to your position over time.
The combination of growing earnings, rising dividends, and share buybacks will quietly work in your favour, and one day, your portfolio could be worth far more than you ever imagined.
