While I write a lot of articles about dividend growth investing, in reality, we are hybrid investors. We invest in both individual dividend stocks and index ETFs.
Generally speaking, I believe most Canadian investors, especially new investors, are better off investing in passive broad market Exchange Traded Funds (ETFs). Once they have a sizable portfolio consisting of ETFs, they can consider adding some individual dividend stocks if they wish.
So what are some best ETFs in Canada to hold for the long term? I’ve decided to go through different categories of low-cost ETFs and come up with a list.
Building wealth via ETF investing
Why did I make the bold statement that I believe most Canadian investors are better off investing in passive broad market ETFs? Well, there are many reasons behind my claim:
- Passive broad market ETFs have extremely low MER
- ETFs are traded on the stock market so they can be easily purchased with a discount broker like Wealthsimple or Questrade. This is very different from mutual funds.
- Broad market ETFs provide instant diversification. Unlike investing in individual stocks, you’re not putting all your eggs in one basket.
- Since investors are investing in the broad market, like the entire S&P 500 or the entire TSX, Investing in ETFs prevents investors from second-guessing whether they made the right selection.
Over the years, the ETF market has changed dramatically. The days of ETFs that track only broad market indices are long gone. Instead, there are many active ETFs (think Cathie Wood’s ARK funds) and sector-specific ETFs available.
Furthermore, ETFs aren’t just for stocks, there are ETFs that hold bonds, commodities, currencies, and even cryptocurrencies. It can certainly get very confusing when you start looking at which ETF to invest in.
To reduce any confusion, my selection of the best ETFs in Canada will be focused on equity ETFs.
Best All-In-One ETFs in Canada
I’ve come to like and appreciate these all-in-one ETFs over the last few years, so much so that we hold XEQT for both of our kids’ RESP.
Why do I like these all-in-one ETFs so much?
Simplification.
Rather than having to rebalance the stock and bond exposures regularly myself, the fund managers will do that for me. This saves a lot of time and headaches. I simply buy one of the all-in-one ETFs, hold it, and buy some more over time.
Talk about an easy investing strategy!
What I really appreciate about these all-in-one ETFs is that I can pick one that fits my risk tolerance and the ETFs own international assets, giving you both asset and geographical diversification.
Here are the best all-in-one ETFs to hold and my reasons:
Ticker | Fund name | Reasons |
HGRO | Horizon Growth TRI ETF | Total return swaps for tax-efficiency |
VEQT | Vanguard All-Equity ETF | 100% in stocks. Long term growth. |
VGRO | Vanguard Growth ETF | For growth focused investors |
XEQT | iShares All-Equity ETF | 100% in stocks. Long term growth. |
XGRO | iShares Growth ETF | For growth focused investors |
For younger investors, I’d go with VEQT, XEQT, or HGRO. We decided to go with XEQT for our kids because XEQT has slightly more exposure to the US. For investors that currently don’t reside in Canada, and therefore face a lot of tax complications, HGRO might be a better choice over VEQT and XEQT.
For investors that don’t feel as comfortable investing 100% in stocks, I’d go with either VGRO or XGRO which hold 80% equities and 20% bonds. The two are very similar and you can’t go wrong with either one.
For the more conservative investors, I would not consider holding the more balanced approach of 60% equities and 40% bonds. Given that interest rates will continue to rise in the near future and that bonds have an inverse relationship with interest rates, it simply doesn’t make too much sense to invest in bonds right now. This is why I didn’t list the likes of XBAL and VBAL in the above table.
Some readers may ask why I ignored all-in-one funds from BMO. It’s simply because I prefer Vanguard and iShares products over BMO, at least for the all-in-one ETF category.
2. Best Canadian Equity ETFs
Being Canadians, I understand why investors want to invest in our own market. We used to hold VCN, the Vanguard FTSE Canada All Cap Index ETF, in our dividend portfolio. However, after reviewing the top 15 or so VCN holdings, we found out that we hold most of them already via individual stocks. So we decided to close out our VCN position. One thing to remember is that for any investor, it is always wise to reduce duplications as it obviously lessens the degree of diversification of a portfolio.
However, if you’re not holding individual stocks, holding one of these best Canadian equity ETFs is a great way to build your wealth passively.
Here’s my pick for the best Canadian equity ETFs:
Ticker | Fund name | Reasons |
VCN | Vanguard TFSE Canada All Cap Index ETF | Holds 185 Canadian stocks, 80% in large cap, 13% in medium cap, and the rest in small cap. |
XIC | iShares Core S&P/TSX Capped Composite Index ETF | 237 holdings at 0.06% MER. |
XIU | iShares S&P/TSX 60 Index ETF | Dividend focused |
ZCN | BOM S&P/TSX Capped Composite Index ETF | Low MER, more holdings than XIC (238) |
Since we used to hold VCN, you probably know my preference already. Yup, if you want to hold a broad Canadian ETF, I think VCN is a great choice because of the slightly lower MER of 0.05% compared to XIC and ZCN’s 0.06%.
But looking at the big picture, the 0.01% MER difference isn’t huge. To put things into perspective, a $500,000 portfolio means you’d be paying $50 more by holding XIC or ZCN over VCN. This certainly isn’t enough money to split hairs – or to think too long over.
XIU was listed as one of the top Canadian dividend ETFs so for dividend-focused investors that are OK with the ETF holding only about 60 holdings, XIU is a solid Canadian equity ETF to hold and build wealth.
3. Best US Equity ETFs
There are many global international companies that are listed in the US stock market, therefore, Canadian investors might want to tap into the US market by owning some US equity ETFs.
Here’s my pick for the best US equity ETFs:
Ticker | Fund name | Reasons |
VFV | Vanguard S&P 500 Index ETF | Tracks the S&P 500 |
VUN | Vanguard US Total Market Index ETF | Invests in the entire US market |
XUS | iShares Core S&P 500 Index ETF | Tracks the S&P 500 |
VFV and XUS are very similar as both track the S&P 500 index. VFV’s MER is 0.01% lower than XUS. But at such a low difference, I wouldn’t worry about it too much.
VUN holds over 4,000 stocks. If there’s one broad market ETF for the US market, VUN is it!
You might have noticed that I picked VFV, the unhedged version over the CAD-hedged version, VSP. Similarly, I picked VUN the unhedged version over the CAD-hedged version, VUS. Why do I prefer non-hedged ETFs over hedged ones? Because I believe over the long term, there are not many differences between hedged vs. unhedged. So why pay the extra fees? Now if you’re investing for the short term, then hedging might provide a slight edge over hedging.
When it comes to owning US equity ETFs, one must consider tax efficiency, more specifically, the US withholding tax on dividends. When you invest in Canadian listed US equity ETFs, these ETFs will be subjected to the 15% withholding tax on any dividends received if held in a non-registered account. So any distributions that you receive already have the 15% taken away. You may be able to recover the withholding tax in the form of foreign tax credits… If you hold one of these US equity ETFs in either RRSP or TFSA, you’re out of luck.
Therefore, in some cases, it’s usually better to hold US-listed ETFs that track the US equity market. For example, VTI, the Vanguard Total US Market Index ETF, traded in US dollars, is a very popular ETF in the US.
4. Best International Equity ETFs
Home bias is a real factor to consider for Canadian investors looking to build wealth through equities. As good as the TSX is, it is heavily made up of the financial and energy sectors. To have proper asset diversification, Canadian investors must consider international equities. Virtually all the research indicates that Canadian investors have a very strong home bias.
We just examined the US market in the earlier section. Despite the significant US market size, it does not contain all the companies in the world. Some global companies like Toyota, Samsung, BYD, and Meituan are not traded on the US exchanges. Therefore, for diversification purposes, it makes sense to own international equity ETFs. Here are the best international equity ETFs:
Ticker | Fund name | Reasons |
VXC | Vanguard FTSE All-World ex Canada Index ETF | 11,344 international stocks at low MER |
XAW | iShares Core MSCI AC World ex Canada Index ETF | Slightly lower US exposure than VXC |
We used to own VXC and switched to XAW due to XAW’s lower MER fees. But Vanguard has done a lot of work on VXC over the years and now VXC’s MER is 0.01% lower than XAW.
Whichever you decide to hold, I don’t think you can go wrong with VXC or XAW. They’re both winners in my eyes.
5. Best Emerging Markets Equity ETFs
The emerging markets can be quite tricky, so my recommendation is to hold them through either the all-in-one ETFs or the international ETFs. However, if you decide that you must own an emerging markets equity ETF, here’s my pick:
Ticker | Fund name | Reasons |
VEE | Vanguard FTSE Emerging Markets All Cap Index ETF | Tracks 5,435 stocks with key focus in China, India, and Taiwan markets |
XEC | iShares Core MSCI Emerging Market IMI Index ETF | Exposure to large and mid-sized companies. Key exposure in China, Taiwan, and South Korea markets. |
ZEM | BMO MSCI Emerging Markets Index ETF | Potentially more tax efficient by holding EEM, a US-listed ETF |
Summary: Best ETFs in Canada – Building wealth via ETF investing
Wow, that was a lot of ETFs wasn’t it? Given the growing popularity of ETFs in recent years, it can be confusing navigating the ETF world and picking out ETFs that suit your investing needs and strategy. I hope my summary of the best long term ETFs in Canada will come in handy, especially for newish investors.
In summary, if you like a simple straightforward no-frills investment strategy, then investing in one of the all-in-one ETFs is a good idea.
If you don’t mind rebalancing regularly, then a combination of Canadian, US, and emerging markets ETFs may be a good idea.
Now if you’re like us that own both Canadian and US dividend stocks, then owning an international ETF to increase global diversification makes a lot of sense.
Happy investing and building wealth!
Hi Bob,
I am loving your surplus of good information on this website ! I wish I knew about this site sooner !
I have two questions:
1. Could you explain in detail about securities/equities that are Cdn Hedged? Is it better to buy in the security listed in USD or in Cad Hedged (CAD$)?
2. I am reading about paying 15% taxes via investing a Canadian listed US ETF (article above) – could you please elaborate on that?
I live in Canada and trade in Canadian Dollars. All of my investments and trading transactions are done in TFSA and RRSP.
I look forward hearing from you. Thanks and talk soon!
-Joseph
Hi Joseph,
Thank you.
For hedging, please take a look at this article – https://www.tawcan.com/hedged-vs-unhedged-etfs-in-canada/
When you hold US stocks and ETFs, there’s a 15% withholding tax on dividends & distributions. If you hold them in RRSP, due to treaty between Canada and USA, the tax isn’t applicable. When you hold them in non-registered, your distributions/dividends will get deducted by 15% but you gain that in foreign tax credit. In TFSA you lose that money completely.
If you buy a Canadian ETF that holds US dividend stocks, then you don’t have to worry, the distributions you receive is net 15% withholding tax already.
Hope this helps.
“If you buy a Canadian ETF that holds US dividend stocks, then you don’t have to worry, the distributions you receive is net 15% withholding tax already” – Hence, when invested in RRSP, there is no tax withheld?
Please take a look at this article for the details – https://www.tawcan.com/dividend-tax-drags-foreign-withholding-taxes/
Hi Bob,
New investor here! I’m looking at purchasing ETFs for XEQT, and I’m wondering if there’s another ETF you would recommend that would diversify nicely alongside XEQT.
Much appreciated 🙂
Ps. I’m investing from Canada in CAD
Hi Sab,
I think XEQT is very well diversified, I would have no problem holding only XEQT. In fact, that’s what we’re doing with our kids’ RESP.
Hello Bob. Great article. Thank you.
I have a couple of young family members who are looking for suggestions of what broad based ETF’s to invest in for their TFSA’s. My usual suggestion is to buy XIC to get exposure to Canada and VOO to get exposure to the US. Simple. Super diversified. The challenge I am having is what weighting to use between the two? Does it make sense to weight it based on size of market? I.E. 10 or 15% XIC and 85 to 90% VOO?
Using broad based ETF’s is a pretty self-explanatory and effective way to invest. How to think about the weightings – for a Canadian investor – I find that is the much more difficult question. Or an I overthinking things?
The weight is really an individual preference. Based on size of market makes sense. Personally I think it’d be easier to rely on XEQT or VEQT. 🙂
Hi Bob,
I have some pre-existing investments in USD (as I get US Stocks as part of my compensation). I have been selling those and keeping them in USD and then buying USD ETFs such as VTI, VOO etc.
Do you recommend I keep them in VTI etc. or convert them into CAD and then buy CAD equivalent ETFs?
Thanks,
Vik
If they’re already in USD, I’d continue to keep them in VIT, etc.
Hi Bob,
I would like to get your view on BMO etf ZUQ, its long-term performance is quite good, and secondly when investing in etfs is there a minimum amount in assets that an elf should have ?
Thanks
Jagdish
Hi Jagdish,
I don’t know ZUQ too well (there are way too many ETFs to follow). From a quick look on the website, ZUQ looks like an OK ETF to hold. But you could probably simply a bit more by holding an S&P 500 index ETF.
Hi Bob,
I’ve read you opinion about XAW and VXC, and I’d love to read your thoughts and impressions about XDG? Could it be an interesting alternative with a similar MER, but higher yield?
Many thanks for another great article!
Lyne
Hi Lyne,
I’m not very familiar with XDG. It’s global dividend fund so you’re definitely limiting yourself the eligible stocks per say. The top 10 holdings being XOM, PG, JNJ, HD, ABBV, KO, NESN, CVX, PEP, and ROG means this ETF is quite consumer staples and healthcare focused. At 368 holdings, XDG is diversified. However, the whole point of holding XAW/VXC is to diversify outside of Canada. To set a limit of holding only dividend paying stocks seems to somewhat limiting the diversification purpose. Hope this helps.
Hi Bob, it’s been a while since I’ve posted on your articles, but have always enjoyed reading your articles, as I’ve been an avid reader for several years now. I hope you’re doing well.
In my TFSA, I employ a 3 ETF strategy for long term investing with an allocation of 50%, 30% and 20% in the following order; that is, 50% VXC (I used to have XAW, but closed this position to acquire VXC, for no other reason than, I prefer Vanguard products and because the other 2 remaining ETFs are from Vanguard as well, which are, 30% VCN and 20% VSB.
I’ve been doing that now since 2017.
In my RRSP, I went with an All-in-one ETF soon after it was created, for its simplicity, of automatic rebalancing, which is VGRO.
And now, I’ve opened a FHSA, and I was thinking of investing in the ETF VFV.TO, but I’m not sure if this is recommended. I’m sure that it would depend on my time horizon of when I plan to buy my first home and to be honest, I have no idea, no immediate plans, I just opened the account to take advantage of the benefits of an FHSA, and all I’ve been doing is adding funds to the account every month, but have not yet pulled the trigger as to what I want inside the account. Did you by chance write an article about this very thing? That is what should I invest in this account?
Since you’ve mentioned these ETFs specifically, I’m curious to know your thoughts about my allocation amount and account types I have these ETFs in; but mostly your suggestion on my current FHSA dilemma.
Thanks again Bob!
Hi there,
Nothing wrong with using VXC and have preference with Vanguad products. VXX, VCN, and VSB are great combo. Without knowing how old you are, I am wondering if 20% VSB if too much or not. But that’s a personal decision.
For FHSA, it really depends on your time horizon and when you plan to buy your first home, as you indicated. If you don’t need the money for the next 3-5 years, VFV.TO is OK to use. You can also go with VEQT or XEQT as well. Alternatively, you might want to look at VGRO or VBAL if your timeline is shorter.
Hope this helps.
Hi Bob,
Hope you have a good weekend.
I have been reading your article for a while, and as a beginner investor, I have a limited budget to invest in my TFSA and RRSP, now I am trying to create my portfolio, so I was curious about your insight about XSEA? It has a low MER and the return is not that bad.
Thanks for your time
Hi Eden,
Thank you! I don’t know too much about XSEA so not sure if I can provide much feedback. Looks like it’s concentrated in financials and industrials with heavy exposure to Japan and the UK. I don’t know enough about it so I’d say you’re better off staying with one of the ETFs mentioned in this post.
Hi Bob, Appreciate all the incredible info on your site! I’m wondering what you think of NSCE. I haven’t seen another Canadian ETF like it. I would call it NB’s version of “Canada ex Oil plus CSU”. Dividend is low but it seems to have outperformed the TSX consistently, though the number of holdings is low. Many thanks, Kenneth
Thank you Kenneth. I haven’t been following NSCE so don’t know much about it. Looks like it has 10 holdings so it’s not all that diversified IMO.
Hello
Your thoughts on ZEB? We are new to this. I’m trying to sort out what to put in our TFSA’s moving forward.
Thank you
Hi Shelley,
Please see my thoughts on ZEB and Canadian bank ETFs here – https://www.tawcan.com/canadian-bank-etfs/
Great information. It’s important to note that if you were to build a diversified portfolio with non-all-in-one ETF’s (group 2, 3, 4, and 5), for group 4 (international), you might want to get VIU instead of VXC, as VXC also includes US holdings. If you pick from group 3 and group 4 you will be double dipping into the US and may overweight it. VXC in fact consists of 62% US holdings.
I hold XIC (Canada), XUU (US), VIU (International), VEE (Emerging), and VAB (Bonds).
That’s a good point, thanks Eddie.
I was under the assumption that there is a tax advantage to holding US Equity ETF’s in an RRSP (elimination of 15% withholding tax on US dividends received)? Am I wrong on this?
That’s a good point, but that depends on whether the ETF is Canadian listed, holding US equities or US listed. See here for more explanation – https://www.tawcan.com/dividend-tax-drags-foreign-withholding-taxes/
Thank you for that in depth article! It’s exactly what I was looking for.
Hi Bob,
Thanks for the information, I would like to get your view on ZLB?
also is parking cash for a short term in HISA etf a good idea?
Not as familiar with ZLB but looks like the ETF holds more “stable” stocks in the utility and consumer staples sectors. It only holds 49 stocks and they’re all in Canada so it may not as diversified as other ETFs I have pointed out.
Where to park cash for the short term would really depend on how you define short term. If it’s less than 1 year, might be better to park the cash in a GIC or high savings account. HISA ETF may also work, you’ll have to evaluate the risk. 🙂
Hi Bob,
Thanks for this info. on ETFs. I think there is a small typo. though. In this sentence: “Now if you’re investing for the short term, then hedging might provide a slight edge over hedging.”
I believe a “not” is missing, as the sentence should read “…then hedging might provide a slight edge over not hedging.”
Thanks,
Dan
Hi Dan,
No, typically hedging is a shorter term strategy. See here – https://www.tawcan.com/hedged-vs-unhedged-etfs-in-canada/
Hi Bob,
Happy New Year! Thank you for the excellent information on ETF’s. I always look forward to your updates to check against our portfolio. In my RRSP, I’m invested in IVV for S&P 500 exposure. I can’t remember why I didn’t invest in XUS, given that it’s in Canadian dollars. Do you see any downside to staying invested in IVV?
Many thanks, Laura
Happy new year to you too Laura. IF you already have a sizable invested in IVV might not make sense to switch. The only disadvantage IVV might have is that it’s in USD so you have to convert CAD to USD and take the hit on currency exchange.