The S&P 500 is a stock market index that tracks 500 of the largest companies in the United States. Here is what it is, how it works, and how Canadian investors can access it through exchange-traded funds (ETFs) and index funds.
What is the S&P 500?
The S&P 500, short for the Standard & Poor's 500, is a stock market index that tracks the performance of 500 large companies listed on stock exchanges in the United States. It is widely considered one of the most reliable benchmarks for overall U.S. stock market performance.
The index is market-capitalization-weighted, which means companies with higher market values have a greater influence on its performance. To be included, a company generally must meet criteria related to market capitalization, liquidity, and profitability.
You cannot invest directly in the S&P 500 index itself — it is simply a measure of stock market performance. Instead, investors gain exposure through index funds that aim to replicate the index's returns by holding the same stocks in the same proportions.
Index funds that track the S&P 500 are among the most popular investments in the world, thanks to their low costs, broad diversification, and historically strong long-term performance. They are available as both ETFs and mutual funds.
How to invest in the S&P 500
Canadian investors typically access the S&P 500 through ETFs or mutual funds that track the index. ETFs trade on stock exchanges throughout the day, while mutual funds are priced once daily after markets close.
You can hold S&P 500 index funds in a variety of registered and non-registered accounts, including:
How to buy an S&P 500 ETF step by step
Step 1: Open a brokerage account
To buy an S&P 500 ETF, you need an account with an online brokerage. Some Canadian brokerages offer commission-free ETF purchases, though terms vary by platform, which means you can buy and sell ETFs without paying a trading fee. Look for a platform that supports the account type you want and provides access to ETFs listed on the Toronto Stock Exchange (TSX).
Step 2: Choose your account type
The account you choose affects how your investment gains are taxed. Here is how the main options compare:
TFSA: shelters your investment gains from tax entirely — you pay no tax on growth or withdrawals. (Note: U.S. dividends paid into a TFSA are still subject to a 15% U.S. withholding tax that cannot be recovered.)
RRSP: gives you a tax deduction on contributions, which can lower your taxable income in the year you contribute.
Non-registered account: offers the most flexibility with no contribution limits or withdrawal restrictions, but investment gains are taxable.
Step 3: Research and select an S&P 500 ETF
Several S&P 500 ETFs are listed on the TSX, and they differ in a few important ways. Compare the management expense ratio (MER), which is the annual fee charged by the fund. Check whether the ETF is currency-hedged or unhedged, and review its tracking accuracy — how closely the fund's returns match the actual index.
Step 4: Place your order
Once you have selected an ETF, search for its ticker symbol in your brokerage platform. Enter the number of shares you want to buy, then choose your order type — a market order executes immediately at the current price, while a limit order lets you set the maximum price you are willing to pay. Review the details and submit your order.
How to choose the right S&P 500 ETF
Management expense ratio (MER): the MER is the annual fee the fund charges, expressed as a percentage of your investment. For Canadian-listed S&P 500 ETFs, MERs typically range from about 0.08% to 0.10%. (0.03% applies to U.S.-listed funds that trade in U.S. dollars, not the Canadian-listed funds described here.) Lower fees mean more of your returns stay in your pocket over time.
Currency hedging: because the S&P 500 is denominated in U.S. dollars, changes in the exchange rate between the Canadian and U.S. dollar can affect your returns. A hedged ETF aims to neutralize that currency risk, while an unhedged ETF leaves your returns exposed to exchange rate fluctuations. Neither approach is inherently superior — the right choice depends on your outlook and time horizon.
Tracking accuracy: an ETF's job is to mirror the index as closely as possible. Check the fund's tracking difference — the gap between the ETF's return and the index's return over time. A smaller tracking difference generally indicates a more efficiently managed fund.
Benefits of investing in the S&P 500
The S&P 500 is one of the most widely followed stock market indices in the world, and there are several reasons investors are drawn to it:
Diversification: a single S&P 500 index fund gives you exposure to 500 large U.S. companies across a wide range of industries, which helps spread risk compared to holding individual stocks.
Ease of access: S&P 500 ETFs and mutual funds are widely available through Canadian brokerages and can be held in registered accounts like a TFSA or RRSP.
Long-term performance: historically, the S&P 500 has delivered strong long-term returns, though past performance does not guarantee future results.
Risks of investing in the S&P 500
While the S&P 500 offers broad exposure to the U.S. market, it comes with risks that are important to understand:
Concentration risk: the index is market-capitalization-weighted, so a small number of very large companies can have an outsized effect on performance. A downturn in those companies can drag down the entire index.
Underexposure to other markets: investing solely in the S&P 500 means you have no direct exposure to Canadian, international, or emerging market stocks, which may perform differently over time.
Limited return potential in some environments: because the index includes only large-cap U.S. companies, it may underperform smaller companies, other regions, or other asset classes during certain market conditions.
Is the S&P 500 a good long-term investment?
The S&P 500 has a long track record of recovering from downturns, including recessions, financial crises, and bear markets. While short-term volatility is inevitable, investors with longer time horizons have historically been rewarded for staying invested. That said, past performance is not a guarantee of future results.
For a well-rounded portfolio, many investors pair S&P 500 exposure with Canadian equities, international stocks, and fixed-income investments like bonds. This kind of diversification can help smooth returns and reduce the impact of any single market underperforming. The right mix depends on your personal financial situation, goals, and risk tolerance.
