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One common mistake I’ve noticed is that many people use their Tax-Free Savings Account (TFSA) to chase after quick wins.
They invest in penny stocks, meme stocks, and other high-risk options. While these might seem attractive for fast gains, they come with a big risk.
If you lose money in your TFSA, that contribution room is gone for good. It’s not just about the loss of money but also the loss of potential future growth on that money.
Given the $6,500 TFSA contribution limit for 2023, it’s important to make smart choices. Instead of aiming for the short term, it’s wise to look at the long game.
My preference is to find a solid investment that can offer steady and reliable growth over the years. Let’s look at my top exchange-traded fund (ETF) pick that aligns with this strategy.
Why I like the S&P 500
The S&P 500 Index represents 500 of the largest companies in America. By investing in this index, you’re essentially buying a small piece of these companies, giving your investment a wide reach across various sectors of the economy.
This broad diversification means that even if one or a few companies face challenges, the overall index can still remain robust because of its vast makeup.
Another benefit of the S&P 500 is its low turnover. In other words, the companies listed in the index don’t change frequently. This stability means fewer transaction costs and less unpredictability for investors.
However, one of the most compelling reasons to consider the S&P 500 is its track record. According to the latest SPIVA report, about 92% of funds have failed to beat the S&P 500 over the past 15 years.
This statistic suggests that trying to outperform the market by picking individual stocks or relying on fund managers can be challenging. The S&P 500’s historical performance has demonstrated strong long-term returns.
My ETF of choice
When it comes to gaining exposure to the S&P 500 from Canada, my preferred pick is BMO S&P 500 Index ETF (TSX:ZSP).
ZSP stands out not only because of its direct alignment with the S&P 500 but also due to its prominence in the Canadian market.
It’s one of the largest ETFs in Canada in terms of assets under management, showcasing its widespread popularity among investors.
A key attribute that often draws attention to ZSP is its cost effectiveness. With a management expense ratio of just 0.09%, it offers a relatively affordable way to tap into the S&P 500.
To put it in perspective, for a $10,000 investment in this ETF, an investor would pay a mere $9 annually. This low fee structure ensures that more of the investment’s returns remain with the investor.