If you’re thinking about trying value investing inside a Tax-Free Savings Account (TFSA), I’d urge you to reconsider doing it through stock picking.
The reason is simple: if a stock pick goes wrong in a regular taxable account, at least you can claim the loss against future capital gains. But in a TFSA, if you strike out, that contribution room is gone forever. You can’t get it back, and you don’t get any tax breaks either.
That said, there are still smart ways to tilt your TFSA portfolio toward a value investing philosophy—without the risk of going all in on individual names. With just one exchange-traded fund (ETF), you can capture the benefits of value investing the diversified way. Read on to learn how.
Why I like this Canadian value ETF
One of my favourite ways to get value exposure in a TFSA is through iShares Canadian Value Index ETF (TSX:XCV). It tracks the Dow Jones Canada Select Value Index, which holds 36 Canadian companies that screen for traditional value traits like low price-to-earnings and price-to-book ratios.
The portfolio leans heavily on banks, energy, and mining—classic value sectors that also tend to pay solid dividends. In fact, XCV currently offers a 12-month trailing yield of 3.88%.
Held inside a TFSA, that yield is completely tax-free. You can reinvest it to compound over time, keep it in cash to buy the dips or withdraw it as passive income—without paying a cent in tax.
The ETF charges a management expense ratio (MER) of 0.55%, which works out to about $55 per year on a $10,000 investment. That’s reasonable for hands-off exposure to a diversified basket of Canadian value stocks.
And with growth stocks soaking up most of the market attention right now, it might be the perfect time to be a contrarian and buy what everyone else is ignoring.
How XCV could fit into your portfolio
I wouldn’t go all in on XCV or treat it as a core holding. At the end of the day, it holds just 36 stocks concentrated in a few sectors—mainly banks, energy, and mining—all within a single country. That’s not enough diversification on its own.
This ETF is best used as a satellite allocation, meaning it could make up anywhere from 5% to 20% of a well-diversified portfolio. Outside of XCV, you’ll want exposure to global equities to capture broader growth opportunities—and possibly even some bonds if your risk tolerance is on the lower side.
