Get-rich-quick schemes could be the quickest route to financial doom, but the simple path to building wealth is often boring, steady, and yet incredibly powerful. One of the most powerful wealth-building tools available requires almost no effort, minimal cost, and zero stock-picking skill. Consistently investing $250 a month in a diversified low-cost exchange-traded fund (ETF) tracking a well-established market index, like the S&P 500, could turn a Canadian investor into a millionaire.
Canadians may love the S&P 500 Index’s exposure to a larger market, diversification across 500 large-cap U.S. stocks (Canada’s S&P/TSX Composite Index has 200), and deep exposure to the technology sector, a hot source of growth.
After running the numbers on a strategy almost any Canadian can start – investing $250 a month into an S&P 500 Index tracking ETF like the BMO S&P 500 Index ETF (TSX:ZSP) – the results, backed by historical data, might just shock you.
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The BMO S&P 500 Index ETF
Why the BMO S&P 500 Index ETF? Since 2012, this ETF has been a heavyweight champion for Canadian investors seeking exposure to the S&P 500 Index. With nearly $20 billion in net assets, one purchase gives you a slice of 500 of the largest and most important companies in the United States, including Nvidia, Apple, Microsoft, and Amazon.com.
The best part? The ZSP ETF does this for a razor-thin management expense ratio (MER) of just 0.09%. That’s only 90 cents a year for every $1,000 you invest! This low cost keeps more of your money working for you.
An incredible past performance
Suppose you had started this disciplined long-term investment plan a decade ago, regularly investing $250 at the beginning of every single month into the ZSP, and reinvesting every dividend.
How much would that investment have grown over time?
The data is quite interesting. Despite various market ups and downs, including during a 2020 market downturn when the COVID-19 pandemic hit North America, the S&P 500 ETF has delivered strong returns over the long run.
An investor who started in August 2015 and contributed $250 at the beginning of every single month into the BMO S&P 500 Index ETF would have invested a total of $30,000 over the past decade (120 months). Thanks to dividend reinvesting, the power of compounding, and the fund’s robust 13.9% 10-year annualized return (roughly 1.2% a month), that investment would be worth approximately $64,378 today.
That’s right. A $30,000 investment potentially grew by over $34,000 in 10 years. This simplified backtest shows the results of a disciplined strategy using a popular Canadian ETF. It perfectly illustrates how steady contributions can transform modest savings into significant capital, proving the incredible power of dollar-cost averaging and compound growth.
The magic ingredient: Time and compounding
The past decade shows us what’s possible. But what about the future? While past performance doesn’t guarantee future returns, it allows us to make educated projections. Let’s use a more conservative average annual return of 9% to see what the next 20 or 30 years could hold for a disciplined investor.
| Time Period | Number of Contributions | Total Contributions | Estimated Portfolio Value |
| 20 years | 240 | $60,000 | ~$167,000 |
| 25 years | 300 | $75,000 | ~$280,000 |
| 30 years | 360 | $90,000 | ~$458,000 |
| 35 years | 420 | $105,000 | ~$735,000 |
By consistently investing $90,000 of your own money over 30 years, reinvesting all dividends received, you could potentially grow your portfolio to nearly half a million dollars. The gain is purely the result of compound growth doing the heavy lifting for you.
The two most important words: Consistency and patience
The numbers can be dazzling, but the strategy only works if you diligently commit to it and resist the urge to time the market. It’s about your time in the stock market.
You will see market crashes and scary headlines. The key is to keep contributing. Every $250 investment you make during a downturn is buying those world-class companies at a discount, supercharging your returns when the market eventually recovers.
The Foolish bottom line
Building significant wealth doesn’t require a large lump sum. It requires a simple, disciplined plan and the patience to let mathematics work in your favour, as the history of the BMO S&P 500 Index ETF has shown.
A $250 monthly investment into a low-cost S&P 500 ETF like the ZSP is a strategy within reach for many Canadians. This “set it and forget it” approach, over decades, can turn your disciplined savings into a life-changing nest egg.
