TFSA Investors: Where to Invest $6,500 in April 2023

This low-cost index ETF could be a great way to invest your TFSA contribution.

April is halfway over! If you haven’t yet filed your taxes, consider doing so as the deadline is fast approaching. It’s never a pleasant task, but it’s best to get it done quickly.

Another personal finance task that should be on your horizons is contributing to your tax-free savings account, or TFSA, for the year. This year, you can sock away another $6,500, which is $500 higher than previous years, to help offset the effects of inflation.

That being said, holding too much cash in a TFSA isn’t a good idea as the account can be a potent instrument for growth. If you have a high-risk tolerance and are okay with the volatility of stocks, then my following ETF pick could be a good way to invest that $6,500 contribution.

ETF chart stocks

Image source: Getty Images

Ground rules

When I pick ETFs, I look for two primary considerations:

  1. Broad diversification across sectors and market cap sizes. This means the ETF should hold small-, mid-, and large-cap stocks, and from all or most of the 11 stock market sectors.
  2. Low fees: This means the ETF should charge a low expense ratio, ideally 0.25% or less. The lower this is, the better your long-term returns are.

‘Duh,’ both of these factors seem obvious, but they can be significant causes of investment risk if neglected. Poor diversification and excessive fees can easily erode expected returns.

My ETF pick

A possible ETF for a $6,500 TFSA contribution that fits both these rules is the BMO S&P/TSX Capped Composite Index ETF (TSX: ZCN).

Here are a few of the reasons why I’m a big fan of this ETF:

  1. High diversification: ZCN holds around 230 Canadian stocks weighted by market cap from all the sectors in our economy.
  2. Low fees: ZCN charges a 0.06% expense ratio, which works out to around $6 in fees annually for a $10,000 investment.
  3. Reputation: ZCN is managed by a highly reputable fund manager and has attracted over $7 billion in assets under management.
  4. Liquidity: ZCN has a high daily trade volume and low bid-ask spread, making it easy to buy and sell using any self-directed brokerage.
  5. Dividends: Thanks to its portfolio of Canadian stocks, many of which are large-cap, blue-chip dividend payers, ZCN currently pays a decent annualized distribution yield of 3.4%.

To put it plainly, few other ETFs do as good of a job as ZCN when it comes to providing affordable exposure to the broad Canadian market. If you want to track the TSX, this ETF does the job fine.

If you really like some of the individual stocks held in this ETF, you’re free to overweight them as you see fit (and the Fool has some other fantastic suggestions below).

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Stocks for Beginners

man gives stopping gesture
Dividend Stocks

A No-Spend Month Could Jump-Start Your Emergency Savings

Join the No-Spend Month challenge to take control of your finances and discover the benefits of minimal spending habits.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

A 5.6% Dividend Stock I’d Make the Core of My 2026 TFSA Contributions

Enbridge could turn a $7,000 TFSA contribution into about $390 annually, and its cash-flow outlook supports a substantial TFSA income…

Read more »

Paper Canadian currency of various denominations
Stocks for Beginners

How to Invest in U.S. Stocks When the Canadian Dollar Is Weak

Here’s how you can invest in U.S. stocks while the loonie is weak and manage how exchange rates affect your…

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Stocks for Beginners

Rate Hike Risk Is Back: Where I’d Park My TFSA Cash Right Now

Prioritize quality businesses with strong balance sheets and dividend-growth records, and accumulate shares gradually, especially on pullbacks.

Read more »

A woman stands on an apartment balcony in a city
Dividend Stocks

Mortgage Rates May Rise Again, and so Could This Apartment REIT

CAPREIT offers rental exposure, although higher borrowing costs and softer occupancy make the opportunity more nuanced.

Read more »

chatting concept
Stocks for Beginners

What Is an ETF? A 5-Minute Guide for Beginning Canadian Investors

Here’s what Canadian investors should know about ETFs and how to use them to start building a high-quality portfolio for…

Read more »

Senior uses a laptop computer
Stocks for Beginners

What Is an RRIF, and When Do You Need One?

An RRIF can keep your investments working, but its required withdrawals need a cash plan that goes beyond dividend income.

Read more »

Piggy bank wrapped in Christmas string lights
Stocks for Beginners

Canadian Banks Now Dominate the TSX: Is Your “Diversified” ETF Taking Too Much Risk?

A Canadian index fund can own plenty of companies while still leaving your savings exposed to similar risks.

Read more »