S&P 500 ETFs for Canadians // Passive Income Guide

First things first: let’s talk about what the S&P 500 actually is. The S&P 500, or Standard & Poor’s 500, is a stock index that tracks the performance of 500 of the largest publicly traded companies in the United States. It includes companies like Apple, Microsoft, Amazon, and Tesla, giving you broad exposure to the U.S. economy.

The advantage of the S&P 500 is that it is diversified across many sectors like technology, healthcare, financial services, consumer goods, etc. This diversification reduces your risk compared to investing in individual stocks.

So why should you, as a Canadian, consider investing in the S&P 500? Here are three compelling reasons:
Long-term growth: Historically, the S&P 500 has generated an average annual return of about 10% over the long term. While past performance is no guarantee of future results, it has been solid, especially for long-term investors.

Diversification: Investing in the S&P 500 means investing in 500 of the largest U.S. companies, spreading your risk across multiple sectors. If one sector underperforms, another can pick up the slack, providing more stability.

Access to the world’s largest companies: Many of the companies in the S&P 500 are not just American leaders, but global giants. By investing in the S&P 500, you gain exposure to companies that generate revenue around the world, adding an additional level of diversification to your portfolio.

So how can we, as Canadians, invest in the S&P 500? It’s easier than you think! Here are the most common ways:

Exchange Traded Funds (ETFs): The easiest way to invest in the S&P 500 is through an ETF. There are Canadian-listed ETFs that track the S&P 500, such as the iShares Core S&P 500 Index ETF (CAD-Hedged) (TSX: XSP) or the Vanguard S&P 500 Index ETF (TSX: VFV). These ETFs can be bought and sold on the Toronto Stock Exchange (TSX) like any other stock. You don’t have to worry about currency conversion, as some are hedged to Canadian dollars.

US-listed ETFs: If you have a USD account, you can also directly buy US-listed ETFs like the SPDR S&P 500 ETF Trust (NYSE: SPY) or the Vanguard S&P 500 ETF (NYSE: VOO). This can sometimes be more cost-effective, but keep in mind the currency risk and potential withholding taxes on dividends.

Mutual funds: Some Canadian mutual funds also track the S&P 500 index, but they tend to have higher fees than ETFs. If these fees are okay for you, mutual funds may be another option to consider.

Robo-Advisors: If you prefer a hands-off approach, consider using a robo-advisor like Wealthsimple or Questrade. These platforms invest in diversified portfolios that often include S&P 500 ETFs. It’s a simple way to get exposure without worrying about choosing specific funds.

There are tax implications to keep in mind. If you invest in a U.S.-listed ETF in a non-registered account, you may be subject to a 15% withholding tax on dividends. However, if you invest in a tax-advantaged account like a TFSA (tax-free savings account) or an RRSP (registered retirement savings plan), the rules are different. For example, U.S. withholding tax on dividends does not apply to RRSPs, making them a tax-efficient way to invest.

In conclusion, investing in the S&P 500 is a great way to diversify your portfolio and gain exposure to the U.S. market, which has seen strong long-term growth. Whether you choose a Canadian-listed ETF, a U.S.-listed ETF, or a robo-advisor, there are plenty of options to get started.

Remember that investing always involves risk, so it's essential to do your own research and consider speaking to a financial advisor to ensure it's in line with your personal financial goals.

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Hi guys, welcome to the channel. I am a full time CPA as well as a part time Real Estate Agent with experience in finance, investing, budgeting and of course real estate.

For the past 10 years, I’ve been on a personal mission to create multiple streams of income, including both passive and active income. Along the way, I’ve gained a ton of knowledge about personal finance and investing that I’d like to share.

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