If you’ve been watching the market lately, you’ve probably noticed that the TSX has been on a tear recently, with the index up more than 8% in the last three months and more than 14.8% year to date.
That’s, of course, a positive sign for many Canadians with their hard-earned capital in the market. However, on the flip side, when the stock market is hovering near record levels, it’s natural for investors to feel nervous about putting new money to work.
So, with the TSX up more than 22% over the last year and now sitting right near its all-time high, not to mention persistent concerns about inflation, interest rates, and the global economy, it can feel like buying today is a recipe for bad timing.
But while the index certainly looks high on the chart, that’s always been the case for long-term investors. If you zoom out, the TSX has been hitting new highs for decades.
Every crash or correction has eventually been followed by another record high as companies and the economy as a whole bounce back and come back stronger. That’s the nature of why long-term investing and compounding work, and why time in the market essentially always beats timing the market.
So, the real question isn’t whether to invest your money if the TSX is at an all-time high. Instead, you should only really consider whether your investing horizon is long enough to let compounding work. If it is, then the answer is simple: it’s never too late to invest.
Why timing the market rarely works
Although it’s normal to be fearful of a market crash or correction, these events are actually normal, healthy, and, more importantly, offer some of the best discounts for long-term investors.
Looking back at the TSX over the last 20 years, investors have faced every type of headwind imaginable. There was the financial crisis in 2008, the oil price collapse in 2015, the pandemic in 2020, and, most recently, the rapid rise in interest rates.
Each of those events caused significant volatility. And yet, despite all those setbacks, the TSX has gained more than 170% over that period, compounding at an annual rate of over 5.1%.
That’s why trying to time the market by waiting for the perfect entry point rarely works. You might avoid a short-term pullback, but you risk missing entire years of gains. More often than not, sitting on the sidelines is more damaging than buying when the market feels expensive.
Furthermore, even if you get unlucky and invest at a peak, history shows that staying invested and allowing dividends and compounding to work their magic eventually yields positive results. That’s why the most successful investors focus less on timing and more on consistency.
For example, dollar-cost averaging, where you steadily invest a set amount at regular intervals, is one of the best ways to remove emotion from the process and build wealth regardless of where the market sits today.
How to invest in the TSX through ETFs
There are a ton of different ways to gain exposure to the TSX, but the easiest is through low-cost exchange-traded funds (ETFs) that track the index.
For example, two of the best options are iShares Core S&P/TSX Capped Composite Index ETF (TSX:XIC) and iShares S&P/TSX 60 Index ETF (TSX:XIU).
The XIC ETF is designed to better mirror the entire TSX Composite Index. That means you get exposure to nearly 200 Canadian companies of all sizes and across all industries. It’s the most diversified option and a simple way to capture the long-term growth of the Canadian market as a whole.
However, the XIU ETF focuses only on the 60 largest and most liquid Canadian companies. These are the market leaders, such as the big banks, pipeline companies, telecoms, and resource giants that dominate the economy.
Therefore, because it’s concentrated in fewer names, the XIU ETF is less diversified than the XIC. However, it gives you direct exposure to the most stable and profitable businesses in Canada.
And right now, with the XIU offering a yield of roughly 2.7% and the XIC offering a yield of 2.4%, not only can you gain exposure to the TSX today, but you can also start generating passive income immediately while positioning yourself to benefit from the index’s long-term growth.
