Many investors often overlook what is arguably their greatest asset in the realm of investing. It’s not the knack for picking the hottest stock or ETF, nor is it the timing prowess to enter and exit the market at precisely the right moments.
Instead, the most potent weapon in an investor’s arsenal is time, coupled with the power of consistent contributions and the strategic reinvestment of dividends. These elements, when harnessed effectively, can compound even modest sums into substantial wealth over the long haul.
Let’s explore how a disciplined approach to investing in and holding the BMO S&P 500 Index ETF (TSX:ZSP), one of Canada’s most popular ETFs, could potentially escalate your portfolio to the million-dollar mark.
Why invest in ZSP?
ZSP, recognized as the most popular ETF in Canada, boasts $12.5 billion in assets under management for two primary reasons that make it an attractive investment option.
Firstly, ZSP tracks the venerable S&P 500 Index, a benchmark that encapsulates 500 of the largest U.S. companies, carefully selected by the Standard & Poor’s committee.
This index, designed to reflect the performance of the U.S. economy, includes a diverse set of companies across various industries, making it a robust representation of the market’s overall health.
The S&P 500 is renowned for being challenging to outperform, with a historical track record of delivering an average annualized return of about 10%.
Secondly, ZSP is an appealing choice for cost-conscious investors due to its low expense ratio. Since the ETF replicates the S&P 500, it doesn’t incur the high fees associated with active management. With an expense ratio of just 0.09%, the cost of investing $10,000 in ZSP amounts to approximately $9 per year.
An historical example
While ZSP itself has been available to investors since November 2012, we can look to the history of its benchmark, the S&P 500, for a longer-term perspective on the potential impact of a consistent investment strategy.
To understand how investing in a vehicle like ZSP could perform over an extended period, we can refer to a U.S. mutual fund that tracks the S&P 500 as an historical example.
Consider this scenario: starting in 1985, an investor puts an initial sum of $20,000 into the fund and then holds it through thick and thin, reinvesting dividends when received.
This approach, maintained diligently over the years, would have seen the investment grow to over $1.3 million by the present day.
What’s crucial to highlight here is what made this strategy successful. Dividends received from the investment weren’t taken as cash but instead reinvested, buying more shares of the fund, which compounded the growth effect. Equally important was the resolve to hold onto the investment through various market conditions, including bear markets and financial crises.
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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
