S&P 500 for Canadian Investors

The S&P 500 has delivered approximately 10% average annual returns over the past 50 years — one of the best long-term investment track records of any asset class in the world. As a Canadian investor, you have several excellent ways to access this index, each with different tax implications and currency considerations.

What Is the S&P 500?

The S&P 500 tracks 500 of the largest publicly traded companies in the United States. It includes Apple, Microsoft, Amazon, Alphabet (Google), NVIDIA, Meta, and hundreds of other US corporations. The index is market-cap weighted and covers approximately 80% of the total US equity market capitalization.

Unlike the TSX Composite's heavy concentration in financials and energy, the S&P 500 is more balanced and has significant technology exposure (~30%), which has driven strong returns over the past decade.

Currency Risk: The Canadian Dollar Factor

When you invest in the S&P 500 as a Canadian, you're taking on currency risk. If the Canadian dollar strengthens against the US dollar, your US investment is worth less in Canadian dollar terms (and vice versa). Over very long periods, currency effects tend to even out, but they can significantly impact returns in any given 5–10 year period.

Some ETFs offer CAD-hedged versions that neutralize this currency risk using financial derivatives, though hedging has its own costs and complexities.

Best S&P 500 ETFs for Canadians

TFSA vs RRSP: Where to Hold S&P 500 ETFs

In Your TFSA: Use CAD-Listed ETFs

If you hold US-listed ETFs (like VOO) in your TFSA, the CRA does not recognize the treaty exemption, and you'll pay a 15% withholding tax on dividends that you can never recover. Use Canadian-listed S&P 500 ETFs like VFV or ZSP in your TFSA instead. The MER is slightly higher (0.09–0.10%), but you avoid the withholding tax drag. Full withholding tax explanation.

In Your RRSP: US-Listed ETFs Are Ideal

The Canada-US tax treaty exempts US dividends from withholding tax when held in an RRSP. US-listed ETFs like VOO (0.03% MER) or IVV (0.03% MER) are your cheapest option in an RRSP. You'll need to convert CAD to USD — consider using Norbert's Gambit to avoid high forex conversion fees. Learn Norbert's Gambit.

CAD-Hedged vs Unhedged: Which Should You Choose?

For long-term investors (10+ years), unhedged ETFs like VFV or ZSP are generally preferable. Hedging has a cost (typically 0.1–0.3% per year in the form of drag on returns), and over long periods, currency effects tend to average out. If the Canadian dollar weakens (which it has historically tended to do), unhedged ETFs benefit you as a Canadian.

Hedged ETFs (like XSP or VSP) make more sense if you need the money within 1–5 years and want to reduce FX uncertainty.

Buying S&P 500 ETFs: Step-by-Step

1. Open a TFSA or RRSP at Wealthsimple Trade or Questrade
2. Transfer Canadian dollars
3. Search for VFV, ZSP, or XUS (for TFSA)
4. Place a buy order
5. For RRSP: convert CAD to USD using Norbert's Gambit, then buy VOO or IVV

S&P 500 vs Total US Market

Some investors prefer US Total Market ETFs (like XUU or ITOT) over pure S&P 500 ETFs. Total market funds include mid-cap and small-cap companies in addition to the 500 large-caps. Historically, the difference in performance is minimal, but total market funds offer slightly broader diversification at similar cost.

Should You Only Invest in the S&P 500?

The S&P 500 is an excellent investment, but an all-S&P 500 portfolio concentrates you entirely in US large-cap stocks. For full global diversification, consider pairing S&P 500 exposure with Canadian equities (VCN) and international equities (XEF). Alternatively, an all-in-one ETF like XGRO already includes global equities at appropriate weights.