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How to invest in the S&P/TSX Composite Index
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Based in Toronto, Canada’s benchmark stock market index, the S&P/TSX Composite, is a great investment opportunity to consider. There are numerous ways to invest in the index, so we walk you through the entire process to better prepare you to invest.
Where can I buy into the S&P/TSX Composite Index?
What is the S&P/TSX Composite Index?
It is one of the leading indicators of the strength of the Canadian economy. It features about 250 stocks, which represent about 70% of the market capitalisation of the Toronto Stock Exchange. For a company’s stock to be eligible for the index, that company must be based in Canada and be listed as one of the 1,500 stocks on the Toronto Stock Exchange.
Is it a good investment?
Assuming the prevailing market conditions are right, this index can definitely be a strong investment. As of early 2020, Canada’s economy ranked 10th in the world with a nominal gross domestic product of $1.73 trillion. With many blue-chip stocks being tracked by the S&P/TSX Composite, including airlines, retail companies, banks, energy providers, and other industries, the index offers a good level of diversification financial performance for investors.
How do I invest in the S&P/TSX Composite Index?
Here are three steps to follow when investing in the index:
- Choose an investment type
- Use our top tips to succeed
- Choose a platform to invest with
1. Choose investment type
The investment type you choose should match up with your personal investment goals. Here’s a look at the most popular methods you can use to invest in the index:
An ETF (exchange-traded fund) is exactly what it sounds like: a fund that can be traded on an exchange. ETFs are a great get into TRX trading. You can buy and sell an ETF during regular stock market hours, the same way you would with an individual stock. TRX ETFs are relatively inexpensive to trade, and the flexibility they give investors to buy and sell is one of their principle advantages. An ETF can include different groups of assets, such as bonds, commodities, or stocks found in the index.
If you want to be ultra-selective, you can buy lots of individual stocks within the index in separate trades. You can then sell the worst-performing stocks one by one, until you’re left with a smaller group of top holdings. But unless you can afford to spend a lot of time and money, you can probably do better using a different approach as there are around 250 different stocks tracked by the S&P/TSX Composite so transaction fees would quickly rack up.
A mutual fund (also called an index fund) is an investment fund run by a professional money manager that pools the money of a variety of people in order to make investments – such as growing capital in line with the movement of your chosen index. Unlike ETFs, funds can only be traded at the end of the stock market’s trading day, and they also incur higher fees than ETFs. Given the relative cost and complexity of buying a mutual fund, they make the most sense if you’re looking to buy stocks and hold your investment for a while, rather than actively trade it in the short term.
2. Use our top tips to be a successful investor
Check out Invezz.com’s top tips on how to become a successful investor:
- Do your research. Becoming a consistently successful investor requires lots of patience, study, and perseverance. You’ll want to look at how the particular index has performed in the past, to help predict its future. After that, you should look at how investing in the index compares to other investments. After that, map out your personal investment plan, so you can keep your cool even when the stock market turns ugly.
- Set a budget. When you set a budget, do so by considering both your emotional and financial pain points. To manage your risk and limit the size of your losses, set a stop-loss order after you make your investment. Keeping to your budget will ensure you don’t risk too much and are able to stay in the game even if things go a little wrong.
- Select the right platform. The investing platform you pick should match up with your personal investment goals. If getting the lowest transaction fees is the most important factor, you should probably choose an online broker. If you want lots of advice, consider going with a financial advisor.
- Grow your investments gradually. Every investor makes mistakes, and this is especially true for beginners. To manage the damage caused by any early mistakes, consider investing just a small amount of money at first. You can always raise the size of your bets as you gain experience and expertise as an investor.
- Think long-term. The best long-term approach for investing is to buy and hold. A buy-and-hold strategy should be limited to investing during bull markets, as bear markets lead to big losses.
3. Choose a platform to invest with
There are a variety of platforms you can use to put your money into the S&P/TSX Composite. Here’s our review of the best options available:
- Brokers & trading platforms. Online brokers provide easy-to-use investing platforms that let you trade seamlessly, with low transaction costs. This approach works great if you’re a self-driven investor. If you want more help or more personalised customer service and advice, then you might want to consider another option. Brokers allow you to make trades quickly and easily, but don’t provide too much in the way of guiding you through the process.
- Robo advisors. Robo advisors use algorithms to execute trades automatically, keeping transaction costs down and providing an easy-to-use investment option. Some robo advisors will also let you discuss investment strategy with an actual person to craft your automated strategy for a better chance at making gains. Just keep in mind that robo advisors don’t offer the same level of investment guidance that dedicated financial advisors do.
- Financial advisors. Financial advisors offer an immersive level of investment advice. They’ll work with you to set financial goals, explain the different investment options available to you, and help you build an investment plan that fits with your goals. The catch is that financial advisors charge a premium for their services, so you need to consider whether this is a justifiable expense. Considering that investing in an index is fairly simple nowadays, a financial advisor isn’t a must in this case.
- Banks. If you invest with your bank, you gain the convenience of housing all of your financial ventures (such as your checking account, savings account, mortgage, line of credit, and investments) within the same institution. The problem is that banks tend to charge high fees for this convenience, without providing the level of service you’ll find with a financial advisor. If convenience is your primary concern, then investing with your bank is a great option, but if you’re looking for value then it’s best to go elsewhere.
Ready? Here’s our top recommended broker
What should I do now?
If you’re ready to invest, log into your chosen stock trading platform’s website and click buy.
Try some of our investment courses for beginners
Not yet ready to invest in TRX composite? That’s totally ok. You can improve your investing skills by checking out the easy-to-understand investing courses and informative news updates that we offer at Invezz.
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Invezz is a place where people can find reliable, unbiased information about finance, trading, and investing – but we do not offer financial advice and users should always carry out their own research. The assets covered on this website, including stocks, cryptocurrencies, and commodities can be highly volatile and new investors often lose money. Success in the financial markets is not guaranteed, and users should never invest more than they can afford to lose. You should consider your own personal circumstances and take the time to explore all your options before making any investment. Read our risk disclaimer >