3 Canadian ETFs to Buy Now and Hold in Your TFSA

The Tax-Free Savings Account (TFSA) is one of the most flexible investment vehicles available to Canadians. Growth, income, and withdrawals are all protected from taxes, making long-term compounding much more powerful than in a non-registered account.

For most investors, I think the best TFSA strategy is boring in design. Broad diversification, low costs and exposure to high-quality markets are much more important than smart stock selection.

With that in mind, here are three Canadian-listed Exchange Traded Funds (ETFs) that can work together as long-term TFSA holdings, covering U.S. stocks, Canadian stocks and developed markets outside North America.

Vanguard S&P 500 Index ETF

Vanguard S&P 500 Index ETF (TSX:VFV) provides exposure to the S&P 500, which tracks 500 of the largest and most profitable U.S. companies. These companies must meet size, liquidity and profitability requirements, making the index a reasonable measure of the core of the U.S. economy.

VFV gives you exposure to technology, healthcare, financial institutions, consumer companies and industry leaders that generate a large share of global profits. The ETF trades in Canadian dollars, so there is no need to exchange currencies, and the ETF has a low expense ratio of 0.09%. For TFSA investors focused on long-term growth, US stocks remain difficult to ignore.

iShares Core S&P/TSX Capped Composite Index ETF

iShares Core S&P/TSX Capped Composite Index ETF (TSX:XIC) offers broad exposure to the Canadian stock market. It holds large and mid-cap Canadian stocks in sectors such as financials, energy, materials, industrials and telecommunications.

The Canadian market is more concentrated than the US, but also offers strong dividend income and exposure to real assets such as banks, pipelines and railways. XIC is cheap, with an expense ratio of 0.06%, and its distributions consist largely of Canadian dividends. Within a TFSA, these dividends accrue without tax burden, making it a solid domestic core holding company.

BMO MSCI EAFE Index ETF

To complete the geographical diversification, BMO MSCI EAFE Index ETF (TSX:ZEA) provides exposure to developed markets outside of North America. EAFE stands for Europe, Australasia and the Far East, and the index excludes emerging markets.

ZEA owns almost 700 shares in countries such as Japan, the United Kingdom, Switzerland, France, Germany and Australia. Sector exposure differs significantly from North America, with higher weightings in financial services, industrials and healthcare. The ETF has an expense ratio of 0.22% and offers a modest return, providing diversification benefits rather than a focus on income.