The Best ETFs in Canada for Building Wealth

by

New investors (or even established investors) may want to consider investing in broad market Exchange Traded Funds (ETFs) to build wealth. To learn about the best ETFs in Canada for building wealth, you’ve come to the right place!

We’ve reviewed dozens upon dozens of low-cost ETFs so you don’t have to!

Listed in the sections below, we’ve assembled what we consider some of the best ETFs to invest in covering our Canadian market, U.S. market and international markets. Better, still, we’ll also share why these are the best ETFs to own and why you might want to consider ignoring hundreds of other ETFs in the process.

Let’s dig in!

The Best ETFs in Canada for Building Wealth

A lot of personal finance blogs and investing sites will tout the merits of ETFs for a few reasons, many of which we agree with:

  • ETFs can be easily purchased via a discount brokerage or a Robo-advisor. (Further Reading: What is a Robo-Advisor? Is a Robo-Advisor right for you?)
  • Some ETFs often have very low, or no, minimums for investment with discount brokerages.
  • Some ETFs have very low money management fees, allowing you to keep more of your hard-earned money working for you via the power of compounding.

You might recall from our previous posts, including our primer on index investing, that an ETF is really just a basket of securities combined into one fund – a fund traded on a stock exchange. (Hence the name: Exchange Traded Fund.)

ETFs can hold more than just a basket of stocks.

ETFs can hold bonds, commodities, precious metals, currencies, and other assets too.

For the purpose of today’s post, we’ll highlight previous articles on our site that include some of our “best of” ETFs to consider for your portfolio and offer a few other considerations as well so you have everything in this consolidated article.

How to choose the “best ETF” for you

In order to figure out which ETF is best for you, we’ve offered up a few questions for you to answer below:

  1. How long do you plan to remain invested in the fund?
  2. What is your personal risk tolerance for fund losses?
  3. What long-term returns are you hoping to achieve?

As we go through each ETF selection below, consider your answers to each question above!

1. Best All-in-One ETFs in Canada

At Cashflows & Portfolios, even though we don’t own any all-in-one ETFs yet, we believe these are excellent funds for many beginner or intermediate investors.

Here’s why:

  1. All-in-one ETFs eliminate the need for manual rebalancing. Simply buy and hold, and buy and hold some more over time!
  2. These ETFs have your personal investing risk tolerance already designed in.
  3. Such ETFs are already globally diversified, including a small portion of Canadian content.

There are many all-in-one fund providers (Vanguard Canada, iShares Canada, and Bank of Montreal tend to lead the pack of offerings) but there are other fund providers as well.

In our opinion, here are the best ones to own and why:

All-in-one fundTickerRationale to Own
Vanguard All-Equity ETF PortfolioVEQTLong-term investing time horizon for growth
Vanguard Growth ETF PortfolioVGROA bias to growth over fixed income
Vanguard Balanced ETF PortfolioVBALBalanced for growth and fixed income
iShares Core Equity ETF PortfolioXEQTLong-term investing time horizon for growth
iShares Core Growth ETF PortfolioXGROA bias to growth over fixed income
iShares Core Balanced ETF PortfolioXBALBalanced for growth and fixed income
BMO Growth ETFZGROA bias to growth over fixed income
BMO Balanced ETFZBALBalanced for growth and fixed income
Horizons Growth TRI ETF PortfolioHGROHolds 6 Horizons’ 100% equity funds for global growth exposure

Assuming your time horizon was measured in many years, if not decades, we believe all “GRO” funds should be at the top of your consideration list for long-term investment returns while balancing any downside / poor market returns risks (whereby some fixed income holdings might offer some investor comfort).

That makes our bias to ETFs with tickers such as XGRO, VGRO and ZGRO for many investors – which are 80% equities and 20% fixed income. While the traditional 60/40 balanced fund is far from dead, we don’t like the traditional balanced fund with 40% bonds given interest rates remain on the rise and as such, that might put a small dent into your asset accumulation total returns.

2. Best Canadian Equity ETFs

At Cashflows & Portfolios, even though we don’t own any individual, Canadian ETFs (we’ve decided to own many Canadian stocks in our personal portfolios directly – see why here if dividend investing might be right for you!), we believe our list below are excellent funds for any investors to gain the market-like returns from some Canadian stock market indices less minor money management fees.

In our opinion, here are the best ones to own and why:

Canadian EquitiesTickerRationale to Own
Vanguard FTSE Canada All Cap Index ETFVCNExposure to small-, medium- and large-cap companies
BMO S&P/TSX Capped Composite Index ETFZCNFee as low as VCN and XIC; more assets than VCN
iShares Core S&P/TSX Capped Composite Index ETFXICTracks one of Canada’s best-known indices
iShares S&P/TSX 60 Index ETFXIUTracks the top 60 blue-chips stocks in Canada
Horizons S&P/TSX 60 ETFHXTTax-efficient; tracking the TSX 60

Personally, if we had to pick just one ETF, we’d go with XIU.

XIU is also tax-efficient in a non-registered account (since you can take advantage of the Canadian Dividend Tax Credit – see TaxTips.ca for more information) and over many investing years, XIU either meets or beats the returns of those other ETFs above!

Should you wish to invest in some of Canada’s Best Dividend ETFs, look no further than this post for income and growth:

These are the Best Canadian Dividend ETFs to own.

3. Best U.S. Equity ETFs

In our personal accounts, we also want to disclose we have a bias toward owning U.S.-listed ETFs (in U.S. dollars) to hold U.S. stocks or international stocks. We do that mainly to avoid U.S. withholding taxes – a primer on that for those below:

  • U.S. dividends may or may not have withholding tax. Meaning, that if you own U.S. stocks directly in your RRSP, there will be no withholding tax. In other accounts, withholding tax is likely to apply.
  • If you own U.S. stocks through a U.S. ETF, you will not have withholding tax, either.
  • If you own U.S. stocks indirectly through a mutual fund and/or an ETF listed on a Canadian stock exchange, that mutual fund or ETF will be subject to U.S. withholding tax on any dividends before it receives them, even though you will not notice any withholding tax on the dividends or distributions you personally receive from the fund. So, a Canadian mutual fund or ETF is itself considered a non-resident of the U.S., subject to a 15% withholding tax.

In our opinion, here are the best ones to own and why:

U.S. EquitiesTickerRationale to Own
iShares Core S&P US Total Market Index ETFXUUHolds total U.S. stock market = thousands of U.S. stocks
Vanguard U.S. Total Market Index ETFVUNThis is a market-weighted fund, like VTI in the U.S.
Vanguard S&P 500 Index ETFVFVTracks the S&P 500; largest U.S. stocks
Invesco QQQ ETF*QQQ*We like this ETF for a tech-focus; U.S.-listed ETF

If you are seeking more of an income-play for retirement or semi-retirement, look to some of the Best U.S. Dividend ETFs to own below:

These are the Best U.S. Dividend ETFs to own.

4. Best International Equity ETFs

At Cashflows & Portfolios, with a bias to dividend investing in Canada and the U.S. coupled with low-cost ETFs from beyond our domestic borders. So, we own ex-Canada ETFs – some international ETFs to ride the returns of global markets for a very small money management fee.

These are our favourites:

International EquitiesTickerRationale to Own
iShares Core MSCI All Country World ex Canada Index ETFXAWAn ideal global equity fund beyond Canadian stocks
Vanguard FTSE Global All Cap ex Canada Index ETFVXCOne-stop shopping beyond Canadian stocks
iShares Core MSCI EAFE IMI Index ETFXEFGreat, broad coverage of European, Japan and Australian stocks
Vanguard FTSE Developed All Cap ex North America Index ETFVIUA diversified fund beyond North American stocks

In fact, each of us happens to own large quantities of XAW (across a few accounts) to ride those global market returns.

You can read more about XAW including any withholding taxes that may apply, as part of this very comprehensive post:

How to build wealth using our diversified ETF model portfolios.

5. Best Bond ETFs – do you list any?

Nope!

To be honest, while bonds have some place in some diversified investor portfolios, we simply don’t own any personally at Cashflows & Portfolios. That’s why our list above focused on mostly equity ETFs as part of our “best of” list.

Again, some reminders on bonds and interest rates:

  • Most bonds pay a fixed interest rate that becomes more attractive if interest rates fall, driving up demand and the price of the bond.
  • Conversely, if interest rates rise, investors will no longer prefer the lower fixed interest rate paid by a bond, resulting in a decline in its price.

For sure, fixed income is helpful at times (i.e., helping investors navigate or stomach stock market ups and downs) but we far prefer having a cash wedge of sorts to navigate any market volatility.

My Own Advisor has a very comprehensive post on this subject here.

If you are going to own some bond ETFs, we believe you should keep your bond durations/terms short – since bond prices fall as interest rates rise. Holding anything but Canadian fixed income, while potentially good, can be a challenge for some investors. For example, Vanguard’s Global Aggregate Bond Index ETF (VGAB) has a modest management expense ratio but it also has foreign withholding tax costs based on its structure, which depending on the account type the fund is held in, can add in more significant costs.

If you are intending to own any Canadian bond ETFs, consider XSB, VSB or ZAG from BMO as leading candidates.

The Best ETFs in Canada for Building Wealth Summary

At last count, there are over 1,000 ETFs listed on Canadian exchanges. So, if you didn’t read this post, that could make choosing the best ETF for your portfolio a HUGE challenge!

That said, you came to the right place today to narrow a seemingly impossible list of choices down to the very best ETFs in Canada to build wealth with.

Any ETF choice will likely be a balancing act amongst answers to these questions:

  1. How long do you plan to remain invested in the fund?
  2. What is your personal risk tolerance for fund losses?
  3. What long-term returns are you hoping to achieve?

Ultimately, any ETF selection is up to you but we’re happy to answer any questions about our “best of” list above or anything else you want to throw our way for that matter – just leave us a comment and let us know!

Need any help with understanding your cashflow or retirement income needs?

Developing and managing a well-diversified, investment portfolio, if executed well, is very likely to meet your retirement planning and/or your retirement income needs.

Should you ever need any assistance with those drawdown needs like the ones below, don’t hesitate to reach out!

We answer client questions like:

  • What registered accounts do I draw down first?
  • How much income will my investments generate?
  • Can I afford a large purchase like a new car or new house during retirement?
  • Do I have any idea how long this income might last?
  • What amount of taxes will my RRSP withdrawals incur?
  • When should I take my workplace pension?
  • Is it more beneficial to draw down non-registered money before RRSPs and TFSAs?
  • And much, much more…

Knowing how to demystify the retirement income puzzle is not trivial work but it’s absolutely something we can help with – we continue to help clients every month!

If you need some help solving your retirement decumulation puzzle (i.e., how to efficiently withdraw from your retirement accounts), or figuring out if you have enough saved from any portfolio you’ve constructed we’re here to help answer those questions and more!

If you are interested in obtaining private projections for your financial scenario, please contact us here to get started.

Thanks for your ongoing readership and for sharing this site with others – our site is growing thanks to you!

If you find this article helpful, feel free to share:
Tweet about this on Twitter
Twitter
Share on Facebook
Facebook
Share on LinkedIn
Linkedin
Pin on Pinterest
Pinterest
Email this to someone
email
Print this page
Print

Disclosure: Cashflows & Portfolios is reader-supported. When you buy through links on our site, we may earn an affiliate commission.

2 thoughts on “The Best ETFs in Canada for Building Wealth”

Leave a Comment