How to invest in index funds: The complete 2025 guide for Canadians

Key details

• What are index funds? An index fund is a type of investment that holds all the stocks or bonds in a specific market index (like the S&P 500). Its goal is to match the performance of that market, not to beat it.
• What's the benefit of index funds? They are typically low-cost, diversified, and have a long history of competitive performance, making them a cornerstone of modern low-cost investing in Canada.
• How do you start buying them? The most common way for Canadians is by purchasing an Exchange-Traded Fund (ETF) that tracks an index. You can do this by opening a brokerage account (like an RRSP or TFSA), depositing funds, and placing your trade.
• How Questrade helps your index investing thrive: You can buy any Canadian or US-listed ETF with $0 commission. Plus, you can automate your portfolio’s growth with Dividend Reinvestment Plans (DRIP).

What does your money do when you’re not looking?

It’s Saturday morning. You slept in, not by much, but just enough that the sun’s finished creeping across your bedroom floor and is now high above your window. You need a coffee, and go to that place on the corner with the good scones, and, as soon as that first sip hits, all is well.

Now, while you enjoy that peace, what is your money doing?

If it’s sitting in a chequing or savings account, the answer is: not much. It’s waiting, staying still, moving less than you were while you slept in.

That’s why investing is such a difference-maker. It’s not about charts and numbers. It’s about turning the money you have into the life you want. And one of the most proven, straightforward, ways to do it is through index investing. This guide will show you how.

What is index investing, really? (And the big reason you should care)

First, let’s be clear about one key thing: the difference between index investing and index funds. These are sometimes used interchangeably—but they’re not the same thing!

• Index investing is a strategy. It preserves the same core benefit of investing, but strips away most of the complexity. Instead of trying to pick individual winning stocks, you simply aim to match the performance of an entire market "index" like the S&P 500.
• Index funds are the product you buy to execute that strategy. It bundles together all the investments in an index. The two main types of index funds you can buy are traditional mutual funds and Exchange-Traded Funds (ETFs).

To put this into context: think of the S&P 500, which is an index of 500 of the largest companies in the United States. An investor using an index strategy wouldn’t try to pick which of those 500 is best, they’d seek to own a small piece of all 500 of those companies.

Why should you care? This approach means that when the U.S. market as a whole goes up—which, historically, it has over time—their investment goes up with it.

The goal isn't to beat the market, it's to own the market

For decades, studies have consistently shown that the vast majority of professional, expert fund managers fail to outperform the market average over the long term.

That’s not a shot at fund managers—but it does underscore the opportunity you have. You don’t have to try to outperform the market at all, you can skip the guesswork entirely and sync your portfolio’s growth with the progress of the market itself.

The only two things that really matter: low costs and diversification

There are two fundamental advantages to index investing.

First, you get instant diversification. By tracking a whole market, you’re spreading your investment across hundreds or even thousands of companies, sometimes across entirely different sectors, which is far less risky than betting on just one or two.

In fact, Nobel-Prize winning economist Harry Markowitz calls diversification the only free lunch in investing for its ability to lower risk and enhance returns.

Second, because there’s no high-priced manager actively picking stocks, or mutual fund fees to pay, this strategy has a significantly lower cost than others.

In every investing strategy, controlling what you can control is essential—and fees are a big one.

A tale of two investors: how fees impact your wealth-building

You and your best friend both want to invest, but have different ideas for how to do it. You argue a bit, but they’re stubborn, so you decide to let the outcome crown who was right.

You both invest $25,000 and contribute an extra $500 a month. Your friend insisted on using a typical bank mutual fund that has a 2% fee. But you, you read this Questrade article on index investing, so you opted for a low-cost index ETF with a 0.2% fee.

Time passes, a little faster than either of you want to say out loud, and 10 years later the discussion you had comes up at a BBQ, and the winner is clear: You have earned over $13,000 more.

Even in a shorter timeframe, the impact of those fees is impossible to ignore.

That difference is a dream vacation, a down payment on a new car, or a significant head start on a child's education fund. It's real money, and the only thing that separated you two was the fees you chose to pay. This is why focusing on low-cost investing is so critical.

Your 3-step action plan to buy your first index ETF this week

Step 1: Open and fund your account online

Before you can invest, you need a place to do it. In Canada, you have access to unique registered accounts that offer powerful tax advantages. The most common are:

• A Tax-Free Savings Account (TFSA)
  Designed to make any savings goal easier. All your investment growth is completely tax-free, and you can withdraw your money at any time.
• A Registered Retirement Savings Plan (RRSP)
  Ideal for long-term retirement savings, as your investments grow tax-deferred, and you’ll get a tax deduction for your deposits along the way.
• A First Home Savings Account (FHSA)
  Engineered to help you save for a down payment. Your contributions are tax-deductible, and your investment growth is completely tax-free when used for a qualifying first home purchase.
• What if you max out your registered accounts?
  Growth doesn't have to slow down. You can open a Cash or Margin account, which don't have contribution limits, and let you keep investing.

Unlike many big banks, Questrade has no account opening fees, no account minimums, and no trading commissions, making it one of the easiest places to get started.

Step 2: Find the right index ETF for you

Once your account is open and funded, you get to choose your ETF. There’s a lot to choose from, and choice can be overwhelming—how often have you been looking for something to watch only to find you really just ended up scrolling through possibilities for 30 minutes?

But remember: The goal is progress, not perfection. And just by picking your first index fund, you’ll achieve a kind of progress that’s even more valuable than the market. You’ll know you can—and you’ll know you can do it again.

As you start searching, you’ll run into a few different kinds of index funds:

• A Canadian Market Index (like the S&P/TSX 60): Gives you a piece of Canada's largest and most established companies.
• An S&P 500 Index: Gives you exposure to 500 of the largest companies in the U.S.
• An All-World Index: Gives you global diversification by investing in thousands of companies from countries all over the world.

Step 3: Placing the trade

If you found your ETF by researching it with Questrade’s tools inside our platform, great! You’re already right where you need to be to place your order.

If not, just look up the ticker symbol in your Questrade platform, and you’ll be on your way.

Once you’re on the ETF’s page, just enter how many shares you want to buy, and place the order.

That’s it. You did it. You’re now an index investor.

Remember: One of the biggest advantages of using Questrade is that you pay zero commissions to buy any Canadian or U.S.-listed ETF. Those fees make each trade less valuable. Just to break even, your position order will have to rise in value enough to make up for that fee.

Paying trading commissions is like paying mutual fund fees: it’s hamstringing your growth.

One next-level strategy for the savvy index investor

Once you’ve mastered the basics, you can use these powerful features to optimize your portfolio.

• DRIP: The secret to automating your compound growth.
  A Dividend Reinvestment Plan (DRIP) automatically takes any cash dividends your ETFs pay out and uses them to buy more shares of the same ETF, completely free of charge.
  This creates a snowball effect where your new shares earn their own dividends, which then buy even more shares, accelerating your growth without you even having to log in.

Yes, your age matters for investing. Here’s how to grow your strategy as you grow up

Your 20s: The most powerful tool you have is time

When you’re in your 20s, you have the single most valuable asset an investor can possess: a long time horizon. Every dollar you invest now has decades to grow and compound.

• How to start investing with just $50:
  Many broad market ETFs trade for less than $50 a share. For less than the cost of a night out, you can become a part-owner of hundreds of the world’s best companies. The key is to start, no matter how small.
• Your first account:
  For almost every young investor, the TFSA is a cornerstone. Your investment growth is 100% tax-free, and you can withdraw the money at any time, for any reason, without paying a penalty.

Your 30s: You work hard. Does your money?

This is a self-reflective time. Your income is growing, but so are your expenses, and you’ll start to assess if what you’d been doing until now is really working for you.

• Your 30s are prime time to pivot.
  If your mutual fund has a Management Expense Ratio (MER) of around 2%, you are handing over a significant chunk of your wealth to the bank every single year. A comparable index ETF could have a fee as low as 0.20%, or even less.
• Making the switch:
  Moving your TFSA or RRSP from a high-fee institution to a low-cost brokerage like Questrade can have lasting repercussions on how you save for every big moment ahead of you still (kids, a house, retirement—yes, it’s all possible with the right strategy, even in this economy).

If this speaks to you: good news. When you transfer to Questrade, we’ll cover the fees your old institution charges, up to $150.

Your 40s: Shifting perspectives, changing approaches

In your 40s, growth is still going to be a focal point, as are the big-ticket purchases (though maybe funding your kid’s university expenses is now the one you’re tending to). Not only that, retirement is closer than it’s ever been before—and all that means your strategy may start to shift.

• From all-out growth to balanced income: While you still want your portfolio to grow, you might start thinking about protecting what you’ve built. This could mean dedicating a larger portion of your portfolio to less volatile investments.
• How index funds can generate passive income: Many index funds, especially those focused on established dividend-paying companies, can provide a steady stream of income.
• A look at bond index funds: Adding a bond index ETF to your portfolio is a classic way to reduce volatility. Bonds tend to behave differently than stocks, helping to smooth out the ride during market ups and downs.

Own the market, own your future

It’s not a flashy secret, or even a well-kept one, but it is essential: consistency and patience drive long-term growth.

By making regular contributions, keeping your costs low, and allowing the force of compound growth to do more of the work, you can set your future self up for the best life possible.

Index investing isn’t the only way to get there—but it may just be the easiest.

The complete index investing FAQ

• How do I choose the "best" index fund?
  There is no single "best" fund, only what's best for your goals. Instead of searching for the perfect fund, focus on choosing a high-quality, low-cost ETF that tracks a broad market index, like the S&P 500 or a total-world stock market index.
• What's the difference between an index fund and an ETF?
  "Index fund" is the product category you can look at to apply an index investing strategy strategy (passively tracking an index), while "ETF" and "mutual fund" index funds are the products you use to do it. In Canada today, ETFs are the more popular product choice due to their significantly lower fees and trading flexibility.
• Can I lose money in an index fund?
  Yes. Owning anything means there’s a risk of losing it, and an index fund is no different. The value of your investments will go up and down with the market. However, major market indexes have a long history of recovering and trending upwards over the long term.
• Is now a good time to invest?
  The best time is as soon as you’re able to. Trying to "time the market" is generally a losing game. A more effective strategy is "time in the market." By investing consistently over a long period, you buy shares at various prices, smoothing out your average cost and benefiting from long-term growth.
• I have a mutual fund with my bank. How do I move it?
  You can ditch the costly fees by transferring your account to a brokerage like Questrade. We cover all the essential transfer details you’ll need to know, including types of transfers and timelines, here.