Best ETFs for your RRSP

You’ve saved and contributed to your RRSP for this tax year. Kudos!

Now, what do you buy?

Well, if you want to invest inside your RRSP using Exchange-Traded Funds (ETFs), you’ve come to the right place. We believe these are some of the Best ETFs for your RRSP.

Why ETFs?

Let’s be clear: there are a lot of ways to invest.

Some fans of this site own dividend-paying stocks for income and growth. We do too!

Yet, if you’re at all fussy or concerned about what stocks to own then you can avoid those risks associated with individual stock selection by buying and holding low-cost ETFs in your RRSP.

But not all ETFs are created equal.

As part of your decision to invest in any ETF, for your RRSP, you’ll also want to decide if you’re more of an active or passive investor – so you align your investment products with your personal goals and those products also align with your investing behaviour.

Active vs. Passive Investing

In our view, neither approach is right nor wrong. Both investing styles have merit but also some risks.

Active investors tend to try and beat market returns. Generally speaking, they try to capitalize on market opportunities, by taking advantage of market lows, or highs. Active investing can be highly involved – it can take time, specialized knowledge, and energy to do it well. Typically, active investors are seeking short-term profits. Traders, a more extreme form of active investing, can use various strategies to take advantage of market momentum or declines.

At Cashflows & Portfolios, we’re not active investors per se since we don’t trade and don’t suggest it either! You’ll need to decide how active of an investor you want to be.

Rather, we are a bit active in that we have built our own Canadian dividend ETF in some ways – buying and holding a basket of many Canadian dividend-paying stocks respectively. Beyond our own lists of Canadian stocks though, we also own low-cost ETFs. A few of them are in this list below actually…

Passive investors tend to ignore market fluctuations per se and try to match market returns. Passive investors know that they have no magic crystal ball to accurately predict the future – including the short-term gyrations of the market and any individual stocks in the market – so they don’t even bother.

Passive investors know instead of timing their stock (or fund) purchases, they are better off getting invested and staying invested for years on end if not decades on end, in a diversified set of investments that matches their tolerance for risk along with meeting their financial goals.

These investors might invest in indexed funds. Good on them to do so!

An index fund is a mutual fund or Exchange Traded Fund (ETF) that aims to mirror a particular market.

For example, equity index funds essentially contain a tiny piece of all the companies included in a particular market index. When you invest in an equity index fund, you’re buying a small slice of the entire market.

Continuing with the example just above, there are index funds that mimic the Canadian stock market, U.S. stock market, and international stock markets. There are also index funds that mimic bond markets as well.

In fact, there are many index funds that track many different markets of all shapes and sizes, but each index fund shares a similar goal: to match that particular market’s return with time.

Index investing is therefore simply the process of using index funds to build a passive investment strategy. Index investors decide which markets they want to invest in, how much of their money to put in each one, and how often to re-balance their portfolio, and they utilize index funds to put that process in place.

Indexed ETFs vs. Other ETFs

Both index funds and ETFs basically aim to track a specific market, holding a set of securities. While index funds are passive, some ETFs can be active or passive. Recall that active money management usually means higher costs to you – the investor.

ETFs trade like stocks, on an exchange – hence the name “Exchange” Traded Funds. But don’t let the “Traded” name fool you. ETFs don’t have to be traded. You can buy and hold the same ETFs for years or decades on end if you wish as part of the passive investing strategy we highlighted above.

Beyond our collection of stocks, one of our favourite ways to invest for long-term wealth building is via investing in index funds and/or owning broader-market ETFs.

Without further delay, here is what we consider the best of the best, the Best ETFs for your RRSP.

Best ETFs for your RRSP

1. Own All-in-One ETFs

Set and forget.

Well, save often, set, and forget.

The beauty behind all-in-one or asset allocation ETFs is they eliminate the need for any manual rebalancing and they’ve designed-in-your risk tolerance. They also have built-in diversification.

If your investing timeline is measured in decades, a good bet is to own 100% equity ETFs or “GRO” funds that have a complete or stronger bias to equities vs. bonds. If you are looking for a lower volatility ETF portfolio that offers both long-term capital growth and some income, the “BAL” funds could be better for you.

Here are the major players and firms involved:

Here is our quick summary:

Fund Mix (Equities / Bonds)	Vanguard Canada	iShares	BMO	Horizons
Conservative (40/60)	VCNS	XCNS	ZCON
Balanced (60/40)	VBAL	XBAL	ZBAL
Growth (80/20)	VGRO	XGRO	ZGRO
All Equity (100/0)	VEQT	XEQT	ZEQT	HGRO
Income	VRIF or VCIP	XINC	ZMI*

*Yes, ZMI.

We added this BMO ETF as a steady income play that is also nicely diversified for a very reasonable fee. This fund might be a good bet for any retirees seeking to earn (monthly) income from their portfolio without having the need to sell ETF units, at least right away, for income generation.

Here is our quick guideline to help you choose the right all-in-one ETF for you:

Are you feeling conservative?
- Consider this fund if your investing timeline is short and/or you don’t want to stomach too much market volatility. More bonds can be parachutes for your portfolio when equities tank.
Do you appreciate some balance in your life?
- Balanced ETFs have more equity exposure than bonds and are designed to be more pension-like in terms of that equity-to-bond mix.
Do you appreciate growth?
- We believe if your investing timeline is >10 years or so, best to have a strong bias to equities to realize higher returns. You will need to accept more near-term market volatility, however.
Can you handle 100% equity?
- We believe if your investing timeline is >10 years or so, and you have the strong stomach to ride any stock market returns in any given year (good or bad), these funds (VEQT, XEQT, ZEQT, HGRO) offer 100% equity exposure and no fixed income for potentially the highest returns.

2. Own a low-cost U.S. ETF

The huge appeal behind our list of all-in-one or asset allocation ETFs above, is they eliminate the need for any manual rebalancing, they have built-in diversification, and you can invest very easily with your risk tolerance and timeline in mind.

That said, you might want to be mindful of foreign withholding taxes inside your RRSP/RRIF when you invest.

Foreign Withholding Taxes (FWT) Primer

First, U.S. stocks are generally subject to a 30% withholding tax on dividends for non-residents. Many countries, including Canada, have tax treaties with the U.S. to ensure a reduced rate of withholding tax – but this only applies to certain accounts.

For qualifying Canadian residents, the tax can be reduced to 15%.

In the RRSP/RRIF or LIRA/LIF, the tax may be reduced to 0%.

In order to qualify, an investor has to fill out at their investment firm: Form W-8BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals).

(Long title we know!)

U.S. stock dividends or U.S. ETF distributions paid into an RRSP/RRIF, or LIRA/LIF, are generally free from withholding tax for Canadian residents who have completed W-8BEN forms.

In non-registered and tax-free savings accounts (TFSAs), the 15% FWT rate generally applies.

Another important point is that Canadian ETFs, including the all-in-one funds we listed above, that own U.S. stocks or U.S. ETFs as part of their holdings are considered Canadian investments and subject to 15% withholding tax. If you own these in your RRSP, they will not qualify for the 0% withholding tax rate. This is because the ETF is considered the shareholder of the U.S. stocks, not you or your RRSP.

So, back to the title of this section, this is why many DIY investors including ourselves tend to own a low-cost U.S. ETF inside our RRSP for long-term wealth building that takes advantage of the U.S. market returns.

Here are our favourites including some similar funds/Canadian funds that will have 15% FWT applied:

ETF	Index	MER	CAP Comments
Remember with these U.S. listed ETFs listed below they do not have any 15% FWT applied inside the RRSP/RRIF:
Vanguard Total Stock Market ETF (VTI)	CRSP US Total Market Index	0.03%	Own the entire U.S. market in one fund, > 3,000 stocks!
Vanguard S&P 500 ETF (VOO)	S&P 500 Index	0.03%	Own the biggest (~500) stocks in the U.S.
iShares Core S&P 500 ETF (IVV)	S&P 500 Index	0.03%	Own the biggest (~500) stocks in the U.S.
iShares Core S&P Total U.S. Stock Market ETF (ITOT)	S&P Total Market Index	0.03%	Similar to VTI, own the U.S. market, > 3,000 stocks including smaller cap stocks.
*Remember with these Canadian-listed ETFs listed below (that hold U.S. assets) 15% FWT will apply!*
Vanguard U.S. Total Stock Market Index ETF (VUN)	CRSP US Total Market Index	0.16%	Canadian equivalent of VTI.
Vanguard S&P 500 Index ETF (VFV)	S&P 500 Index	0.09%	Canadian equivalent of VOO.
iShares Core S&P Total U.S. Stock Market Index ETF (XUU)	S&P Total Market Index	0.07%	“A fund of funds” with mostly IVV and ITOT.
BMO S&P 500 Index ETF (ZSP)	S&P 500 Index	0.09%	Another great Canadian fund to track the U.S. S&P 500 and avoid CDN <> USD $$ currency conversions. Also available in USD units (ZSP.U) and trades in USD on the TSX.

3. Own an ex-Canada ETF

We mentioned at the top of this post that at Cashflows & Portfolios, we’re not active investors but we do own many active, individual stocks passively – in that we buy and hold such stocks for dividend income and growth. We have done so for years and will continue to do so…including in any semi-retirement!

To help us diversify away from our respective baskets of Canadian stocks and any related home-bias risks, we own an ex-Canada low-cost ETF that captures thousands of stocks from around the world in one simple package. While both of us have built our own Canadian dividend ETF in some ways – buying and holding many individual Canadian dividend-paying stocks respectively – we own an ex-Canada ETF as well for simplicity, diversification, and passive investing growth.

We have both decided to own XAW (for a bit more international diversification over VXC) but both funds below are outstanding. Consider either one for your RRSP investing journey for long-term equity returns beyond Canadian borders.

ETF	Index	MER	CAP Comments
iShares Core MSCI All Country World ex Canada Index ETF (XAW)	MSCI ACWI ex Canada IMI Index	0.22%	· Global diversification, beyond Canada, in one fund and ideal for TFSA, RRSP/RRIF for long-term growth.
Vanguard FTSE Global All Cap ex Canada Index ETF (VXC)	FTSE Global All Cap ex Canada China A Inclusion Index	0.21%	· Greater U.S. exposure than XAW.

Best ETFs for your RRSP Summary

When it comes to saving for retirement, while RRSPs are pretty darn good, we want to remind you that investing inside your TFSA may make more sense.

In fact, you could retire on just the TFSA alone!

Yes, you can retire if you are disciplined enough over time just contributing to your TFSA. 🙂

In closing out this post, we believe there are two huge tax benefits that RRSPs provide Canadian investors that you cannot ignore:

a tax deduction today from your RRSP contribution, and
tax-deferred growth.

With your tax deduction, you can reduce the taxes you pay today.

With tax-deferred growth, investments in your RRSP can compound over time without being taxed as long as money made stays in the account.

Although we have preferred to use the TFSA for investing purposes, and maximize contributions to the TFSA over the RRSP, the RRSP as a vehicle for retirement savings can work wonders. As long as you consider these Best ETFs for Your RRSP for wealth-building.

Need any support with your retirement income projections?

Knowing how to save and invest wisely, to help you get the most out of your portfolio including using your RRSP for retirement planning is something we can help with.

In addition to that asset accumulation work, we know using the RRSP/RRIF to help solve your retirement decumulation puzzle is complex at best, especially when combined with other assets.

Figuring out when to draw down your RRSP/RRIF assets, how much, and more, to ensure you have enough saved for retirement AND to help you navigate the tax issues associated with that is something we’ve helped dozens upon dozens of clients within the last few months alone!

If you are interested in obtaining private projections for your financial scenario, read more about our retirement projections service.

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“TODAY’S FINANCIAL TOOL
Cashflow$ & Portfolios is the name of a website built to help people learn how to reach their long-term financial goals with budget and long-term investing. Brought to you by a pair of veteran personal finance bloggers.”

Thanks Rob Carrick!

Stay tuned for more case studies and great articles over time.

Mark and Joe.