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S+P 500 index fund

Almo

Masterblazer
Almo
Joined
Aug 30, 2005
Messages
6,846
Location
Montreal, Quebec
Hi!

So I'm looking at getting a solid low-risk section in my investment portfolio. I'm looking at S+P 500 index funds, since they're low-cost, and are recommended by quite a few sources since it's so hard to beat the market consistently over the years.

Here's what's bugging me:

http://www.schwab.com/public/schwab...id=P-1018783&ticker_sym_nm=SWPIX&schwabplan1=

This appears to be an average sort of index fund, with 0.35% cost of management. But on the page I've linked above, it's netted 7% since incept. I think that's 7% annual return.

It beats inflation, and doubles what you get from a savings account. I'm thinking long-term here, like buy some and hold for 30 years.

Does this make sense? I know there's no subsititute for seeing a financial advisor, but I've seen some pretty sharp people here when it comes to investing and want a second opinion.

One more thing:

I live in Canada. Should I worry about this investment in relation to long-term currency fluctuations?
 
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Index funds have two advantages over actively managed funds. One is the low expense ratio since that subtracts directly from the annual return. The second is the low turnover ratio. In the US that translates into lower tax bills. Gains from selling stocks are passed directly to the mutual fund holders even if you don't sell the mutual fund. I don't know how the tax rules work in Canada.

As for currency rate fluctuations, the S&P 500 is an index US companies. You are betting that the US dollar will not continue to fall against the Canadian dollar. That's probably a safe bet over the long haul.
 
Apart from checking how well they track an index, the thing that differentiates one index fund from another is the fee it charges. 0.35% (if that is the total charge) sounds good to me.

With the exchange rate risk, I agree with Kestrel above that the USD should not keep falling against the CAD, but it is a risk.

The past performance numbers you are looking at are probably in USD terms. In CAD--at least for the last six years--the returns will have been a lot lower due to the appreciation of your currency. You might like to find out for sure what your CAD return would have been and see if that is quite so tempting. I am sure there are plenty of TSX trackers
 
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