Statistics show that many Canadians may not be fully utilizing the potential of a diversified portfolio within their Tax-Free Savings Accounts (TFSA). According to a 2023 survey by Royal Bank of Canada (TSX:RY), around 39% of TFSA holders primarily invest in cash, and only 13% hold a diversified mix of stocks, bonds, and exchange-traded funds (ETF).
This lack of diversification can limit long-term growth potential. That’s because a mix of different asset classes tends to perform better over time compared to focusing on a single type of investment like cash or Guaranteed Investment Certificates (GIC). Diversification helps spread risk and can lead to more stable returns. And here’s how to get it right away.
VXC
Vanguard FTSE Global All Cap ex Canada Index ETF (TSX:VXC) is an excellent choice for Canadians looking to start building a diversified portfolio. With over 12,000 stocks from around the world, this ETF provides exposure to global markets across sectors, including the U.S., Europe, and emerging economies. By excluding Canadian stocks, it allows investors to gain a broader international perspective. This is ideal for those who already have Canadian exposure in their portfolios. The global diversification helps to spread risk, so you’re not relying on one country’s economy to perform well.
Moreover, VXC has a relatively low management expense ratio (MER) of 0.20%, making it an affordable option for long-term growth. It includes large-, mid-, and small-cap stocks, ensuring a mix of growth potential and stability. As of 2024, the ETF has generated strong returns in line with global market performance, thus making it a solid starting point for anyone looking to diversify beyond Canada and access opportunities in major international markets.
RBC
Royal Bank is another excellent option for investors looking to build a diversified portfolio. The stock has shown impressive momentum, reaching an all-time high in recent weeks and delivering strong returns in 2024. With a market cap of over $232 billion at writing, RBC is one of the largest and most stable banks in Canada, offering a balance of growth and dividend income. As of its recent earnings report, RBC posted a profit of $4.49 billion in the third quarter (Q3) of 2024, up from the previous year. Plus, it has seen steady revenue growth, with a 13% year-over-year increase. Its strong domestic banking performance and lower loan provisions have contributed to its solid financial health.
For investors seeking stability and income, RBC’s dividend yield is currently around 3.46% at writing, with a quarterly dividend of $1.42 per share. This, combined with a forward price-to-earnings (P/E) ratio of 12.77, makes it an attractive option for long-term growth and consistent income. The bank’s diversified operations, strong capital base, and consistent performance make it a great addition to a portfolio, especially for those looking for exposure to Canada’s financial sector. Additionally, RBC’s extensive history and strong market presence provide investors with confidence in its ability to weather economic fluctuations.
CNR
Canadian National Railway (TSX:CNR) on the TSX is an excellent option for investors looking to diversify their portfolios, especially given its strong market presence and financial stability. CNR’s stock has seen a steady performance, indicating resilience in volatile markets. With a market cap of $98.49 billion and a healthy forward P/E ratio of 17.92, CNR presents itself as a blue-chip stock ideal for investors seeking both growth and income.
What makes CNR particularly attractive for diversification is its stable dividend, which currently yields around 2.16%. The company has also maintained a payout ratio below 40%, making its dividends sustainable. CNR’s dominance in the North American railway sector provides a solid backbone for long-term growth, supported by strong operating margins of over 40%. For those looking to add a well-established industrial stock to their portfolio, CNR offers both stability and the potential for moderate, consistent returns.
