The S&P 500 is a stock market index that tracks the performance of 500 large companies listed on stock exchanges in the United States. It is widely considered one of the most reliable benchmarks for overall U.S. stock market performance. Canadian investors cannot buy the index directly but gain exposure through exchange traded funds or index funds listed on the Toronto Stock Exchange. These investment vehicles offer a low cost and diversified way to participate in the growth of the largest segment of the U.S. economy.
What the S&P 500 Is and How It Works
The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. It is a subset of the broader S&P 1500 index and is maintained by S&P Dow Jones Indices. The components are selected by a committee based on criteria including market capitalization, liquidity, and profitability. The index is a public float adjusted capitalization weighted index, meaning companies with higher market values have a greater influence on its performance. As of December 31, 2025, the index represented approximately 83 percent of the total market capitalization of U.S. public companies.
The median market capitalization of the index components is $41.8 billion. Components range in market capitalization from $5.6 billion to $4.8 trillion. The index is one of the factors in the computation of the Conference Board Leading Economic Index, which is used to forecast the direction of the economy. Companies in the S&P 500 derive a collective 72 percent of revenues from the United States and 28 percent from other countries. You cannot invest directly in the S&P 500 index itself as it is simply a measure of stock market performance.
History and Development of the Index
The origins of the S&P 500 trace back to 1860 when Henry Varnum Poor published a reference guide for railroad investors. In 1923, the Standard Statistics Company developed its first stock market index consisting of 233 U.S. companies, computed weekly. Three years later, it developed a 90 stock index computed daily. In 1941, Poor's publishing company merged with Standard Statistics Company to form Standard & Poor's. On March 4, 1957, the index was expanded to its current extent of 500 companies and renamed the S&P 500 Stock Composite Index.
Several key milestones in the index's history made it more accessible to investors. On August 31, 1976, The Vanguard Group offered the first mutual fund to retail investors that tracked the index. Futures based on the index began trading on the Chicago Mercantile Exchange on April 21, 1982, and options began trading on the Chicago Board Options Exchange on July 1, 1983. Beginning in 1986, the index value was updated every 15 seconds, a significant increase from the prior once per minute updates. The first exchange traded fund linked to the index, the Standard & Poor's Depositary Receipts, began trading on January 22, 1993.
- 1923: First Standard Statistics index of 233 companies.
- 1957: Index expands to 500 companies.
- 1976: First retail index mutual fund launched by Vanguard.
- 1982: S&P 500 futures begin trading.
- 1983: S&P 500 options begin trading.
- 1993: First S&P 500 ETF (SPDR) launches.
- 2005: Index transitions to public float adjusted weighting.
- 2021: Final trading date for the original S&P futures contract.
Investment Products Linked to the S&P 500
Products linked to the S&P 500 include index funds such as exchange traded funds and mutual funds as well as derivatives like options and futures contracts. The goal of these products is to replicate the performance of the index. There are also modified index funds that replicate the performance with modifications such as the use of covered call strategies, equal weighting, performance buffers, leverage, or the inclusion of only growth or value stocks. The SPDR S&P 500 ETF Trust has approximately $800 billion in assets and has the highest average daily volume of all S&P 500 ETFs.
In total, there was approximately $13 trillion in assets tracking the index as of December 31, 2024. The component companies that have increased their dividends over 25 consecutive years are known as the S&P 500 Dividend Aristocrats. S&P Dow Jones Indices also provides several market cap based subsets of the S&P 500. These include the S&P 100, which is chosen by a committee, and rules based indices like the S&P 500 Top 50, Top 20, and Top 10. As of 2026, the S&P 500 Top 20 comprises nearly half of the index's total market cap.
How Canadian Investors Access the S&P 500
Canadian investors typically access the S&P 500 through ETFs or mutual funds that track the index. These funds are held in registered or non registered investment accounts. ETFs trade on stock exchanges like the Toronto Stock Exchange throughout the day, while mutual funds are priced once daily after markets close. To buy an S&P 500 ETF, you need an account with an online brokerage. Some Canadian brokerages offer commission free ETF purchases, though terms vary by platform. You can hold S&P 500 index funds in a Tax Free Savings Account, a Registered Retirement Savings Plan, or a non registered cash account.
The account you choose affects how your investment gains are taxed. A TFSA shelters your investment gains from Canadian tax entirely, though U.S. dividends paid into a TFSA are subject to a 15 percent U.S. withholding tax. An RRSP gives you a tax deduction on contributions and can also shelter you from the U.S. dividend withholding tax if held in that account type. A non registered account offers the most flexibility with no contribution limits but investment gains are taxable. Several S&P 500 ETFs are listed on the TSX, and they differ in management fees, currency hedging, and tracking accuracy.
Key Considerations for Canadian S&P 500 ETFs
When selecting a Canadian listed S&P 500 ETF, investors should compare several key features. The management expense ratio is the annual fee the fund charges, expressed as a percentage of your investment. For Canadian listed S&P 500 ETFs, MERs typically range from about 0.08 percent to 0.10 percent. Lower fees mean more of your returns stay invested over time. Currency hedging is another important factor because the S&P 500 is denominated in U.S. dollars. A hedged ETF aims to neutralize currency risk between the Canadian and U.S. dollar, while an unhedged ETF leaves returns exposed to exchange rate fluctuations.
Tracking accuracy refers to how closely an ETF's returns match the actual index's returns over time. A smaller tracking difference generally indicates a more efficiently managed fund. Investors should also note that ETFs trade at market price, not net asset value, and buying or selling involves brokerage commissions. The exact tax treatment of distributions is calculated after the fund's tax year end, and investors receive an official tax statement from their broker. Popular Canadian listed options include the Vanguard S&P 500 Index ETF, the iShares Core S&P 500 Index ETF, and the BMO S&P 500 Index ETF.
| ETF Consideration | Description |
|---|---|
| Management Expense Ratio (MER) | Annual fee, typically 0.08% to 0.10% for CAD-listed funds. |
| Currency Hedging | Hedged ETFs neutralize CAD/USD exchange risk. Unhedged do not. |
| Tracking Accuracy | Measured by tracking difference vs. the index. |
| Trading | ETFs trade at market price on an exchange via a brokerage. |
| Tax Treatment | Depends on account type (TFSA, RRSP, non-registered). |
Performance and Historical Returns
Since its inception in 1926, the index's compound annual growth rate including dividends has been approximately 9.8 percent, which equates to about 6 percent after adjusting for inflation. The standard deviation of the return, calculated on a monthly basis over the same time period, is 20.81 percent. While the index has declined in several years by over 30 percent, it has posted annual increases 70 percent of the time. Approximately 5 percent of all trading days result in the index reaching a record high. This long term performance is a key reason the index is a central part of passive investment strategies.
A 2024 report from S&P Dow Jones Indices shows that the vast majority of professional fund managers fail to outperform the S&P 500 index over the long term. This fact supports the popularity of index investing. The historical returns demonstrate the power of diversification across 500 large companies. The index's performance is closely tied to the health of the U.S. economy, given its constituents generate 72 percent of their revenue domestically. For Canadian investors, the returns achieved through index funds are net of the fund's management fees and any currency effects.
Risks and Debates for Investors
Investing in the S&P 500, while offering diversification, is not without risks. The index is subject to market volatility, as evidenced by its standard deviation of over 20 percent and years with declines exceeding 30 percent. The index is also fairly top heavy, with the largest 20 companies comprising nearly half of its total market capitalization as of 2026. This concentration means the performance of a few mega cap stocks can disproportionately influence the overall index return. Furthermore, the index only includes large U.S. companies, leaving out small cap stocks, international equities, and other asset classes.
A central debate for Canadian investors revolves around currency hedging. Choosing between a hedged or unhedged S&P 500 ETF introduces an additional variable based on expectations for the Canadian dollar relative to the U.S. dollar. There is also the ongoing debate between active and passive management, with data consistently showing most active managers fail to beat the index over the long term after fees. Finally, while the index has historically provided strong returns, past performance does not guarantee future results, and investors face the risk of capital loss, especially over shorter time horizons.
Frequently asked questions
What accounts can hold S&P 500 investments in Canada?
You can hold S&P 500 index funds in a Tax Free Savings Account, a Registered Retirement Savings Plan, or a non registered cash account. Each account type has different tax implications. For example, gains in a TFSA are tax free, while an RRSP offers a tax deduction on contributions. U.S. dividend withholding tax treatment also varies by account type.
What is the S&P 500?
The S&P 500 is a stock market index tracking the stock performance of 500 large capitalization companies listed on U.S. stock exchanges. It is maintained by S&P Dow Jones Indices and is a public float weighted or capitalization weighted index. The index represents approximately 83 percent of the total market capitalization of U.S. public companies. You cannot invest directly in the index itself, but through products like index funds and derivatives that replicate its performance. It is widely considered a key benchmark for the U.S. stock market and a factor in forecasting the economy's direction.
How can I invest in the S&P 500 from Canada?
Canadian investors can invest in the S&P 500 by purchasing shares of exchange traded funds or index mutual funds that track the index. These funds are listed on the Toronto Stock Exchange and can be bought through an online brokerage account. Examples include the Vanguard S&P 500 Index ETF and the iShares Core S&P 500 Index ETF. These funds seek to replicate the performance of the S&P 500 Index, net of expenses, and can be held in registered accounts like TFSAs and RRSPs or in non registered accounts.
What is the difference between a hedged and unhedged S&P 500 ETF?
A hedged S&P 500 ETF aims to neutralize the impact of exchange rate fluctuations between the Canadian and U.S. dollar on investment returns. An unhedged ETF does not attempt to mitigate this currency risk, so returns are directly affected by changes in the CAD/USD exchange rate. The choice depends on an investor's outlook for currency movements and investment time horizon. For example, the iShares Core S&P 500 Index ETF offers a CAD hedged version. Neither approach is inherently superior, and each has different implications for risk and return.
What has been the historical return of the S&P 500?
Since its inception in 1926, the S&P 500's compound annual growth rate, including dividends, has been approximately 9.8 percent. After adjusting for inflation, this equates to about 6 percent. The index has posted annual increases roughly 70 percent of the time. It has also experienced years with declines greater than 30 percent, demonstrating its volatility. The standard deviation of its monthly returns over that long period is 20.81 percent, indicating significant variability around the average growth.
What are the main fees associated with S&P 500 ETFs?
The primary fee is the management expense ratio, an annual charge expressed as a percentage of the investment. For Canadian listed S&P 500 ETFs, MERs typically range from about 0.08 percent to 0.10 percent. Investors may also pay brokerage commissions to buy and sell ETF shares on the secondary market, though some platforms offer commission free trading. It is important to note that ETFs trade at market price, not necessarily at their net asset value, which can also affect the cost of transactions. Lower fees help ensure more of the index's returns are retained by the investor.
Sources and further reading
- S&P 500 (Wikipedia) en.wikipedia.org
- (VFV) Vanguard S&P 500 Index ETF vanguard.ca
- iShares Core S&P 500 Index ETF (CAD- Hedged) - XSP rbcgam.com
- How to invest in the S&P 500 in Canada | 2026 guide wealthsimple.com
- S&P 500 Investing Guide for Canadians questrade.com
This article explains how things work and is not financial, tax or legal advice. Rules, limits and rates change, so check the current figures with the Canada Revenue Agency, your province or your financial institution before you act.