As of June 6, there are 1,454 exchange-traded funds (ETFs) listed in Canada, and that number is increasing weekly. Yet, out of this vast array, I hold only two. Why? Because these Canadian ETFs to buy and hold track the S&P 500 index, which, according to the S&P Indices Versus Active study (SPIVA), has outperformed over 88% of all U.S. funds over the last 15 years.
Here’s a closer look at my top picks. These Canadian ETFs to buy and hold are not just strong performers; they are also perfect for long-term, tax-free compounding within a Tax-Free Savings Account (TFSA).
Vanguard S&P 500 Index ETF
First up is Vanguard S&P 500 Index ETF (TSX:VFV), which tracks the S&P 500 index at a completely low control cost ratio (MER) of 0.09%. This means if you invest $10,000, your annual fees would only be around $9—a small price for access to some of the largest and most influential companies in the U.S.
VFV trades in Canadian dollars, which simplifies the funding technique as there’s no want for forex conversion. With stocks priced round 0, you advantage publicity to 500 foremost U.S. stocks through a single ETF ticker.
It’s additionally one of the maximum famous Canadian ETFs to shop for and hold, with greater than billion invested, and the quantity keeps to grow.
Vanguard S&P 500 Index ETF (CAD-hedged)
I additionally preserve Vanguard S&P 500 Index ETF (CAD-hedged) (TSX:VSP) withinside the identical proportions as VFV. Why? While VFV gives direct publicity to the S&P 500, it isn’t always currency-hedged. This means that when the U.S. Dollar (USD) strengthens towards the Canadian dollar (CAD), VFV profits extra value, however whilst the CAD strengthens, VFV loses value.
However, VSP is currency hedged. This way that its overall performance targets to mirror best the adjustments withinside the S&P 500 index, impartial of foreign money fluctuations among the USD and CAD.
This hedging mechanism offers a layer of safety towards foreign money volatility, making sure that the ETF’s overall performance is purely tied to the inventory index actions and now no longer swayed through forex rates.
Given the contemporary kingdom wherein the USD is buying and selling excessive towards the CAD, having a currency-hedged ETF like VSP offers a useful stability in my funding strategy.
The Takeaway on Canadian ETFs to Buy and Hold
Both VFV and VSP can be excellent holdings for long-term TFSA investors who are comfortable with a higher level of risk. These Canadian ETFs to buy and hold offer diversified exposure to the S&P 500, allowing for tax-free compounding within a TFSA.
The key to success with either of these Canadian ETFs to buy and hold is consistent investment. Regular contributions, coupled with the activate reinvestment of quarterly dividends, can notably beautify the compounding effect over time.
Finally, keep away from the urge to panic promote for the duration of downturns. Remember, those ETFs song the general overall performance of the S&P 500, which has proven robust long-time period increase regardless of periodic setbacks.
Should You Invest $1,000 in Vanguard S&P 500 Index ETFs Right Now?
Before you buy stock in Vanguard S&P 500 Index ETFs, consider this:
The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard S&P 500 Index ETFs wasn’t one of them. The 10 shares that made the reduce may want to probably produce monster returns withinside the coming years.
Consider MercadoLibre (NASDAQ:MELI), which we first recommended on January 8, 2014… if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $16,110.59!
In summary, for those looking for Canadian ETFs to buy and hold, VFV and VSP offer excellent options for long-term growth and tax-free compounding in a TFSA.
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