I’ve written a lot about using a Tax-Free Savings Account (TFSA) for passive income, and it’s a great strategy. Since TFSA withdrawals are tax-free, they don’t push you into a higher income bracket or, if you’re retired, interfere with Old Age Security (OAS) benefits by triggering clawbacks.
But if you’re younger, the best way to use a TFSA is to optimize for growth – focusing on total returns from share price appreciation and reinvested dividends. Delaying gratification now means building a large, tax-free nest egg for the future.
With that in mind, here are my top two exchange-traded fund (ETF) investment choices for a TFSA in 2025, both designed for long-term growth.
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The S&P 500
My go-to ETF for maximizing TFSA growth is the BMO S&P 500 Index ETF (TSX:ZSP).
This ETF holds 500 large-cap U.S. stocks across all 11 sectors, providing broad exposure to the world’s biggest and most influential companies. Stocks in the S&P 500 aren’t just randomly selected – they’re chosen through both a methodology and a committee, which screens for size, liquidity, and earnings quality to ensure only the strongest companies make the cut.
These stocks are market-cap weighted, meaning larger companies make up a bigger share of the index, while smaller ones have less influence. This approach is highly efficient, as it naturally favours winners without requiring constant rebalancing. On average, the S&P 500 only turns over about 2% per year, meaning it doesn’t actively trade much – keeping costs low.
With ZSP, you get exposure to the S&P 500 for a 0.09% management expense ratio (MER), which works out to just $9 per year on a $10,000 investment – a low-cost way to invest in U.S. market growth.
The S&P 500 (currency hedged)
One quirk with ZSP is that when the U.S. dollar rises, Canadian investors get a tailwind – their returns are boosted by currency appreciation. But when the Canadian dollar strengthens, it becomes a headwind, reducing returns.
This happens because ZSP trades in Canadian dollars, while its underlying stocks are priced in U.S. dollars. When the exchange rate moves, it affects your investment’s value – for better or worse.
If you just want the S&P 500’s returns without worrying about currency risk, there’s an alternative: the BMO S&P 500 Index ETF (CAD-Hedged) (TSX:ZUE).
ZUE holds the exact same stocks as ZSP but uses financial instruments to cancel out foreign exchange risk. This way, your returns match the S&P 500’s performance without the added volatility of currency fluctuations. And like ZSP, it comes with a low 0.09% MER.
