3 Canadian ETFs to Buy and Hold in Your TFSA Forever

You can build a perfectly reasonable portfolio with a diversified asset-allocation exchange-traded fund (ETF). That approach works, and for many investors it is more than enough. However, if you want a little more control, just three ETFs can help you achieve most of your goal without adding complexity.

All it takes is one ETF for US stocks, one for Canada and one for international markets. Together they provide global diversification, low costs and exposure to different growth engines, while still being easy to manage through a tax-free savings account (TFSA). Here’s a buy-and-hold-forever mix of three ETFs that does just that.

US stocks

iShares Core S&P 500 Index ETF (TSX:XUS) provides exposure to the S&P 500, which tracks 500 major U.S. companies selected based on size, liquidity and profitability.

This ETF gives you access to many of the world’s most dominant companies in the technology, healthcare, financial and consumer sectors. These companies generate a large share of global profits and have traditionally been strong long-term producers.

The expense ratio for XUS is low at 0.09% per year, making it a cost-efficient way to anchor growth. This is significantly lower than comparable mutual funds available to Canadians.

Canadian stocks

This applies to domestic exposure BMO S&P/TSX Capped Composite Index ETF (TSX:ZCN) covers most of the Canadian stock market.

ZCN owns Canadian large and mid-cap companies in sectors including financial, energy, materials, industrials and telecommunications.

The market cap-weighted structure means that banks, pipelines, railways and energy companies make up a meaningful portion of the portfolio, reflecting how the Canadian market is constructed.

The ETF is very cheap with an expense ratio of 0.06% and pays an annualized return of 2.22% that is compounded tax-free within a TFSA.

International developed markets

To round out the global exposure, Vanguard FTSE has developed an All Cap ex North America Index ETF (TSX:VIU) provides access to developed markets outside North America.

VIU covers Europe, Australasia and parts of the Far East including Japan, the UK, France, Germany, Switzerland and Australia. Unlike smaller international ETFs, it includes shares of large, medium and small companies, increasing diversification across different business models and growth stages.

The expense ratio is higher at 0.23%, reflecting the added complexity of managing a globally diversified portfolio across multiple markets, currencies and settlement systems.

VIU also offers a higher income component, with a rolling yield of approximately 2.48%, which can contribute to smoother returns in a TFSA.