The 2023 Tax-Free Savings Account, or TFSA, limit was raised to $6,500 to help Canadians combat inflation. I’m not sure how much of an impact it really had for those with their budgets pinched, but I’m not turning down an opportunity to put more in my TFSA.
If you have $6,500 ready to put into an investment in a TFSA, there are a few options. For safety, you could consider a Guaranteed Investment Certificate. For income, you could consider Canadian dividend stocks. However, my pick would be a globally diversified exchange-traded fund, or ETF. Here’s why.
Why I’d pick an ETF
The primary advantage of an ETF is the ability to diversify effortlessly at a low cost. Imagine attempting to buy individual stocks from all 11 stock market sectors, small-, mid-, and large-cap stocks as well as stocks from U.S., Canadian, and international markets. It’s pretty hard, if not impossible.
Some of you might like researching stocks and keeping up with each company’s news. I personally don’t, and I’m betting there’s a few of you out there who think the same way. The last thing I want to do is read a earnings report or stare at a ticker chart all day.
For those who desire peace of mind and reassurance that their investment will go up in the long term, as the global stock market does, the only solution is to diversify to the max. This means buying stocks from every country, every market cap size, and every industry.
Sure, you probably won’t ever beat the market. But you also won’t likely under perform it either, or suffer the sort of catastrophic, portfolio-decimating risks that concentrated investing in a single stock, sector, or country entails. That’s why I use an ETF.
ETF suggestions
If I had to lump sum a $6,500 TFSA contribution, I’d go with something like BMO All-Equity ETF (TSX: ZEQT). Despite trading at around $39 a share, ZEQT is highly diversified, offering exposure to over thousands of stocks from U.S., Canadian, and international stock markets via six underlying ETFs.
The best way to think about ZEQT is as a one-stop shop, globally diversified stock portfolio that you can buy with a single ticker. It’s passively managed on your behalf by BMO. This means you don’t have to worry about re-balancing it. All you really need to do is reinvest the dividends every once in a while.
Best of all, ZEQT is cheap. For all this work, you pay a low 0.20% expense ratio. For a $10,000 portfolio, this works out to just $20 in annual fees. That’s nothing considering that by buying ZEQT, you own six underlying ETFs that cover the entire world’s stock market.
