Are you looking to build a rock-solid retirement portfolio for 2025? Exchange-traded funds (ETFs) could be your perfect investment vehicle that forms the core of your nest egg, and you could populate your high-conviction growth or value-stock bets around them. Stashed in a Tax-Free Savings Account (TFSA), Canadian ETFs offer professional management, instant diversification, and cheap access to a wide range of assets at a fraction of the cost of building a portfolio from scratch.
The three Canadian ETFs I’d recommend for your TFSA are iShares S&P/TSX 60 Index ETF (TSX: XIU), Vanguard FTSE Canadian ALL Cap Index ETF (TSX: VCN), and BMO Aggregate Bond Index ETF (TSX: ZAG).
Let’s take a closer look at each offering.
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iShares S&P/TSX 60 Index ETF
The iShares S&P/TSX 60 Index ETF is one of the first ETFs to trade on the Canadian financial markets. Since its inception in 1990, the fund has amassed more than $16.5 billion in assets under management. It offers immediate access to a portfolio of Canada’s 60 largest companies that dominate their respective industries.
The S&P/TSX 60 Index has marginally outperformed the broader S&P/TSX Composite Index over multiple long-term investment horizons of the past five, 10, and 20 years. Companies in the TSX 60 are well established in their respective markets, maintain fortress balance sheets, and offer lower investment risks thanks to their proven business models and competitive moats.
Given a management expense ratio (MER) of 0.18%, investors should expect to pay about $1.80 in annual management expenses for every $1,000 invested.
The XIU ETF pays quarterly dividends with a respectable dividend yield of 3.3%. It could form part of your core portfolio in a TFSA.
Vanguard FTSE Canadian ALL Cap Index ETF
The Vanguard FTSE Canadian ALL Cap Index ETF is one of the lowest-cost ETFs you can buy and hold to gain access to a broad portfolio of 165 Canadian stocks. The $8.5 billion passively managed fund offers exposure to large-cap, mid-cap, and small-cap companies in Canada — allowing investors to gain wider exposure to the local economy.
The VCN ETF has performed well historically. A hypothetical $10,000 investment could have grown to nearly $18,000 over the past five years, or $28,000 since its inception in 2013.
With an MER of 0.05%, investors pay about $0.50 in annual management expenses on every $1,000 invested to get market-tracking returns. The ETF’s distributions yielded 2.5% over the past 12 months, with the quarterly cash payout due in January projected to yield 3% annually.
Fixed-income ETF to Buy: BMO Aggregate Bond Index ETF
Individual retirement portfolios benefit from the capital preservation and low-risk income qualities of bond holdings. The BMO Aggregate Bond Index ETF provides access to a $9.9 billion professionally managed portfolio of Canadian investment-grade federal, provincial, and corporate bonds.
The fund boasts diversified holdings across 1,643 high-quality fixed-income assets. It has gained 8.5% in total value over the past year as interest rates recede and could rise further if the Bank of Canada lowers rates again in 2025. The ETF should generally lower your total portfolio’s risk profile and provide an anchor for your retirement nest egg.
With a low expense ratio of 0.09%, investors get professional management of a complex bond portfolio at a bargain price. Most noteworthy, the ETF converts regular semi-annual bond coupons into monthly income distributions — a critical service for retirement portfolios — currently yielding 3.5% annually.
The ZAG ETF is eligible for investment in your registered portfolios, including the TFSA.
Investor takeaway
The Canadian exchange-traded funds highlighted above could form core holdings in your TFSA or entire portfolio, around which you can populate your favourite stocks (or high-conviction crypto assets). The ETFs will save you on research and asset monitoring time, and you could commit attention and valuable resources to find the moonshots, high-growth stocks, or undervalued assets that will multiply your capital over the long term.
