Advertisement
Canada markets closed
  • S&P/TSX

    21,639.10
    -59.01 (-0.27%)
     
  • S&P 500

    5,431.60
    -2.14 (-0.04%)
     
  • DOW

    38,589.16
    -57.94 (-0.15%)
     
  • CAD/USD

    0.7281
    +0.0001 (+0.02%)
     
  • CRUDE OIL

    78.49
    -0.13 (-0.17%)
     
  • Bitcoin CAD

    91,080.89
    +296.48 (+0.33%)
     
  • CMC Crypto 200

    1,406.26
    -11.61 (-0.82%)
     
  • GOLD FUTURES

    2,348.40
    +30.40 (+1.31%)
     
  • RUSSELL 2000

    2,006.16
    -32.75 (-1.61%)
     
  • 10-Yr Bond

    4.2130
    -0.0250 (-0.59%)
     
  • NASDAQ

    17,688.88
    +21.32 (+0.12%)
     
  • VOLATILITY

    12.66
    +0.72 (+6.03%)
     
  • FTSE

    8,146.86
    -16.81 (-0.21%)
     
  • NIKKEI 225

    38,814.56
    +94.09 (+0.24%)
     
  • CAD/EUR

    0.6798
    +0.0024 (+0.35%)
     

Hey, Canadian Investors: You Can Do Better Than the S&P 500. Buy This ETF Instead

ETF chart stocks
Image source: Getty Images

Written by Tony Dong, MSc, CETF® at The Motley Fool Canada

I’m a big proponent of Vanguard S&P 500 Index ETF (TSX:VFV), where all my Canadian income is invested.

With a low fee of just 0.09%, it provides broad exposure to the S&P 500 index, which has historically outperformed about 88% of all large-cap U.S. stock mutual funds over the last 15 years.

However, as much as I value VFV for its robust performance and simplicity, it isn’t the perfect fit for everyone. Depending on your financial goals and personal preferences, there might be better options out there.

Let’s explore an alternative exchange-traded fund (ETF) that could potentially offer you more tailored benefits than the S&P 500.

Why not the S&P 500?

The S&P 500 is a market-cap-weighted index, which means that companies with larger market capitalizations (share price x shares outstanding) have a bigger influence on the index’s performance.

ADVERTISEMENT

Essentially, the movement of these larger companies can significantly sway the overall direction of the index. This approach is common in many major indexes because it reflects the proportional impact of larger companies on the economy.

However, it’s important to clarify that the S&P 500 includes 500 large U.S. companies, not necessarily the largest. These companies are selected based on a range of criteria, including liquidity and earnings stability, and are assessed by a committee.

Despite its broad coverage, the S&P 500 primarily captures the performance of large-cap stocks and consequently misses out on a substantial number of mid-sized and small-sized U.S. companies.

This exclusion means that the index doesn’t encompass the entire economy, particularly the more volatile and potentially higher-growth segments represented by smaller firms.

Historically, these smaller companies have provided a “size” premium—potentially higher returns due to their greater risk profiles.

Which ETF to buy instead

If you’re aiming for exposure to the entire U.S. market, encompassing large-, medium-, and small-cap stocks, the ETF to consider is Vanguard U.S. Total Market Index ETF (TSX:VUN).

This ETF provides a comprehensive view of the American market by tracking the CRSP US Total Market Index. With an expense ratio of just 0.16%, VUN offers a cost-effective way to diversify across approximately 3,700 holdings.

In terms of top holdings, it still looks very similar to the S&P 500 and historically has performed virtually identically.

However, you get a potential performance boost from the addition of mid- and small-caps, but keep in mind this effect is relatively minor and only appears over long holding periods.

The post Hey, Canadian Investors: You Can Do Better Than the S&P 500. Buy This ETF Instead appeared first on The Motley Fool Canada.

Should you invest $1,000 in Vanguard S&p 500 Index Etf right now?

Before you buy stock in Vanguard S&p 500 Index Etf, 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 Etf wasn’t one of them. The 10 stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, 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 $17,363.76!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 26 percentage points since 2013*.

See the 10 stocks * Returns as of 6/3/24

More reading

Fool contributor Tony Dong has positions in Vanguard S&P 500 Index ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

2024