How to invest in the S&P 500 from Canada (step-by-step) (2024)

Investing in the S&P 500, one of the world’s most renowned stock market indices has long been a popular choice for investors seeking exposure to the US equities market. However, if you are based in Canada, you might be wondering how to gain access to this investment and what is the best approach to invest in the S&P 500 from Canada.

In this comprehensive guide, we will provide you with a step-by-step process for buying the S&P 500 from Canada. We will cover important aspects such as choosing a suitable S&P 500 ETF, offering tips for selecting an ETF broker, and more!

Table of Contents

• What to look for in any ETF?
• The Bottom Line
• Other FAQs

The S&P 500 measures the performance of 500 large-cap US companies. These companies span various sectors and are considered representative of the overall US equity market. As such, investing in the S&P 500 exposes you to a broad range of companies and can serve as a cornerstone of a diversified investment portfolio.

When it comes to investing in the S&P 500 from Canada, it will be costly and inefficient for individual investors to attempt to invest in each of these 500 companies separately. However, Exchange-Traded Funds (ETFs) offer a practical solution by providing a single investment vehicle representing the entire index’s performance. By investing in S&P 500 ETFs, Canadian investors can effectively participate in the potential growth of the index and enjoy the benefits of diversification.

The table below shows the five biggest S&P 500 ETFs available to Canadian investors. This list was already filtered using TMX Money, a site that can help you easily find and compare ETFs listed on the Toronto Stock Exchange (TSE).

5 Biggest S&P 500 ETFs in Canada

*Each fund provider offers a variety of ETFs that track the S&P 500. We have chosen one ETF from each provider to simplify the analysis in this guide. However, we encourage you to visit TMX Money, where you can explore and evaluate all the available ETF options.

Don’t worry if you are not familiar with what the “Replication method” and “Use of income” mean; we’ll explain them later in this guide. Now, let’s move to the second step on how to buy the S&P 500 from Canada.

* Although the number of ETFs is not disclosed, we were able to find all the ETFs suitable for Canadian investors.

Now, you must choose the appropriate order type based on your preferences and trading strategy.

• Limit Order: It is set by default on IBKR. So you can set a specific price at which you are willing to buy the ETF. The trade will only be executed if the market price reaches or falls below your specified limit price.
• Market or Trader Order: This order executes the trade at the prevailing market price and provides immediate execution.
• Amount or Units: Specify the amount of money or the number of shares you wish to invest in the S&P 500 ETF.

ETFs can employ two different replication methods:

• Physical replication, which involves purchasing the actual assets outlined in the index,
• Synthetic replication, where the fund manager utilizes financial derivatives to mirror index performance.

Additionally, you might encounter some ETFs that combine both approaches. Given the high liquidity of the S&P 500’s underlying companies, physical replication is often preferred due to its lower costs and reduced risks associated with derivatives.

ETFs also differ in how they handle income generated by the underlying companies.

• Accumulating ETFs reinvest dividends received from the companies included in the index, leading to a higher ETF price. You won’t need to pay transaction fees or trading costs for dividend reinvestment, as it is done automatically.
• Distributing ETFs, on the other hand, provide regular dividend payments directly to your brokerage account, requiring you to declare the received dividends.

Ultimately, deciding between accumulating and distributing ETFs depends on your circ*mstances and investment strategy. Assess your long-term goals and income requirements to select the best option for your needs. For instance, if you plan to hold your investment for a relatively long period without the need for regular income, an accumulating ETF may be more suitable. However, if you aim to earn regular income from your investment, a distributing ETF would be a better choice. As for taxes, in Canada, distributions by ETFs are generally taxed in the year they are received, which means that holdings in an accumulation fund may still be subject to dividend tax. However, consulting with a tax advisor or professional for personalized advice on tax matters is advisable. Additionally, when you sell your holdings, you may be liable to pay capital gains taxes based on the type of account you have.

In conclusion, investing in the S&P 500 from Canada is a popular option for individuals seeking exposure to the US stock market. Here’s a summary of the steps to follow:

1. Pick an ETF tracking the S&P 500: Look for ETFs such as ZSP and VFV, which offer competitive management fees and are listed on multiple exchanges in different currencies. This allows you to bypass potential broker-related forex fees by purchasing in your local currency;
2. Find a suitable broker: Choosing a reliable ETF broker is crucial for investing in the S&P 500. Consider factors such as the number of available ETFs, fees, and the minimum deposit. Here’s a list of brokers that are giving free stocks, trades, and cash in Canada for your reference;
3. Open an account and deposit money: After deciding which trading platform to use, you must go through the account opening process and deposit money;
4. Send a buy order to your broker for the picked ETF: Sending a buy order to your broker is a straightforward and intuitive process. Just fill in the required fields to execute the trade!

We hope this guide has addressed your concerns and provided valuable insights. Remember to conduct thorough research to determine the best investment strategy for your needs.

Happy investing!

What is the S&P 500?

The S&P 500 is a widely recognized stock market index that tracks the performance of 500 large-cap U.S. companies.

Why would someone in Canada want to invest in the S&P 500?

Investing in the S&P 500 allows Canadian investors to gain exposure to the US market and potentially benefit from its long-term growth.

Which brokers in Canada offer access to S&P 500 ETFs?

Several brokers in Canada offer access to S&P 500 ETFs, including popular platforms like Interactive Brokers, Wealthsimple, Questrade, Saxo Bank, and QTrade.

Can I hold S&P 500 ETFs in tax-efficient accounts such as TFSA, RESP, or RRSP?

Some brokers allow holding S&P 500 ETFs in tax-efficient accounts like TFSA, RESP, or RRSP, providing potential tax advantages.

What is an Exchange Traded Fund (ETF)?

An Exchange Traded Fund (ETF) is a type of investment fund traded on stock exchanges. It is designed to track the performance of a specific index, commodity, sector, or asset class. If you invest in an S&P 500 ETF, you will gain exposure to the performance of over 500 different companies without the need to invest in each individual company separately. This provides a convenient and efficient way to diversify your investment across a wide range of holdings within the index.

What are CFDs? Should I invest in S&P500 CFDs?

Contracts for Difference (CFDs) are derivative financial instruments that allow traders to speculate on the price movements of an underlying asset without actually owning the asset itself. Investing in S&P 500 CFDs involves trading based on the price fluctuations of the S&P 500 index. To learn more about it, read our article: CFDs vs Shares: Understand the Differences.