When it comes to investing in the stock market, it’s not uncommon for investors to spend a ton of time trying to find the best individual stocks to buy. In fact, many investors don’t even consider investing in exchange-traded funds (ETFs) because the thought is that if you can find the right companies, the upside can be massive.
But at the same time, one of the biggest problems many retail investors face is that even after doing all that research, many still end up underperforming the market.
And that’s where the real question comes in.
If the goal is to build long-term wealth, why are so many investors trying to beat something that is already consistently winning?
Because at the end of the day, index funds like the S&P 500 have been one of the most reliable wealth-building tools in the world for decades.
So, if you’re not at least getting that level of performance, you’re essentially making things harder on yourself than they need to be.
That’s exactly why one of the best investments Canadians can buy, especially as a core holding, is iShares Core S&P 500 Index ETF (CAD-Hedged) (TSX: XSP).
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Why the S&P 500 should be the foundation of your portfolio
The first thing to understand is that while ETFs that track index funds are some of the best long-term investments you can make, the S&P 500 isn’t just another index. It’s a collection of some of the largest and most dominant companies in the world.
These are businesses with massive competitive advantages, strong cash flow, and global reach.
Companies like Microsoft, Apple, and Amazon are constantly growing, innovating, and generating significant profits, and when you invest in an ETF like the XSP, you’re getting exposure to all of them in one simple investment.
That’s why it’s such a reliable long-term investment. Instead of trying to pick one or two winners, you own the entire market.
On top of that, one of the biggest advantages of the XSP for Canadian investors specifically is that it’s currency-hedged. That means you’re not dealing with the added volatility of the Canadian dollar moving against the U.S. dollar.
Instead, your returns are tied more directly to the performance of the companies themselves, which makes it a lot easier to stay invested over the long haul.
Furthermore, when you combine that with an incredibly low management fee of just 0.09%, it becomes even more compelling, as keeping costs low is one of the most important factors in maximizing your returns over time.
Why investing in index ETFs can be useful in your portfolio
There are a ton of benefits to owning index ETFs. In fact, Warren Buffett has consistently recommended a low-cost S&P 500 index fund as the best option for the majority of retail investors.
However, that doesn’t mean you shouldn’t buy any individual stocks at all. In fact, finding high-quality businesses that can outperform the market is still one of the best ways to build significant wealth.
But the key is how you structure your portfolio because instead of trying to build your entire portfolio around individual stock picks, one of the best approaches is to use something like the XSP as your foundation.
That way, you’re guaranteed to capture the long-term performance of the market.
And once you’ve done that, it actually makes it easier to take calculated risks with a smaller portion of your portfolio because even if some of those individual picks don’t work out, you still have your core holdings working for you in the background.
This way, you’re not relying entirely on trying to pick winners, but you’re also not giving up the opportunity to outperform either.
At the end of the day, the goal isn’t just to find the next big stock; it’s to build a portfolio that consistently grows over time.
So, if you’re not at least using a low-cost S&P 500 ETF like the XSP as a core part of that investing strategy, you really do have to ask yourself why.
