Could Investing $20,000 in ZSP Make You a Millionaire?

Here’s why buying and holding an S&P 500 index ETF like ZSP could make you a millionaire.

| More on:
exchange traded funds

Image source: Getty Images

Many investors often overlook what is arguably their greatest asset in the realm of investing. It’s not the knack for picking the hottest stock or ETF, nor is it the timing prowess to enter and exit the market at precisely the right moments.

Instead, the most potent weapon in an investor’s arsenal is time, coupled with the power of consistent contributions and the strategic reinvestment of dividends. These elements, when harnessed effectively, can compound even modest sums into substantial wealth over the long haul.

Let’s explore how a disciplined approach to investing in and holding the BMO S&P 500 Index ETF (TSX:ZSP), one of Canada’s most popular ETFs, could potentially escalate your portfolio to the million-dollar mark.

Why invest in ZSP?

ZSP, recognized as the most popular ETF in Canada, boasts $12.5 billion in assets under management for two primary reasons that make it an attractive investment option.

Firstly, ZSP tracks the venerable S&P 500 Index, a benchmark that encapsulates 500 of the largest U.S. companies, carefully selected by the Standard & Poor’s committee.

This index, designed to reflect the performance of the U.S. economy, includes a diverse set of companies across various industries, making it a robust representation of the market’s overall health.

The S&P 500 is renowned for being challenging to outperform, with a historical track record of delivering an average annualized return of about 10%.

Secondly, ZSP is an appealing choice for cost-conscious investors due to its low expense ratio. Since the ETF replicates the S&P 500, it doesn’t incur the high fees associated with active management. With an expense ratio of just 0.09%, the cost of investing $10,000 in ZSP amounts to approximately $9 per year.

An historical example

While ZSP itself has been available to investors since November 2012, we can look to the history of its benchmark, the S&P 500, for a longer-term perspective on the potential impact of a consistent investment strategy.

To understand how investing in a vehicle like ZSP could perform over an extended period, we can refer to a U.S. mutual fund that tracks the S&P 500 as an historical example.

Consider this scenario: starting in 1985, an investor puts an initial sum of $20,000 into the fund and then holds it through thick and thin, reinvesting dividends when received.

This approach, maintained diligently over the years, would have seen the investment grow to over $1.3 million by the present day.

What’s crucial to highlight here is what made this strategy successful. Dividends received from the investment weren’t taken as cash but instead reinvested, buying more shares of the fund, which compounded the growth effect. Equally important was the resolve to hold onto the investment through various market conditions, including bear markets and financial crises.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

calculate and analyze stock
Investing

2 Top Value Stocks I’d Happily Scoop Up in November

Here are two top value stocks I'm seriously considering adding this month. They are likely to continue to accumulate over…

Read more »

A data center engineer works on a laptop at a server farm.
Tech Stocks

3 No-Brainer Data Centre Stocks to Buy With $500 Right Now

Data centres are going to be a huge growth opportunity in the next decade. And these are the top buys.

Read more »

Paper Canadian currency of various denominations
Bank Stocks

1 Magnificent Canadian Dividend Stock Down 28% to Buy and Hold for Decades

This top Canadian dividend stock is underperforming its large peers this year, but a turnaround could be on the horizon.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »

hand stacks coins
Investing

Secure a Wealthy Future With These 3 Canadian Stocks

These Canadian stocks have the potential to appreciate substantially over time and may also enhance returns through dividend payments.

Read more »

Tractor spraying a field of wheat
Dividend Stocks

Is Nutrien Stock a Buy for its Dividend Yield?

Nutrien is down more than 50% form the 2022 highs. Is NTR stock now oversold?

Read more »

analyze data
Investing

3 Blue-Chip Stocks Every Canadian Should Own

These blue-chip stocks are backed by large-cap companies with well-established businesses, solid fundamentals, and a growing earnings base.

Read more »