2025 is already halfway over, and if you haven’t made your full $7,000 Tax-Free Savings Account (TFSA) contribution for the year, it’s time to catch up!
The TFSA is one of the most powerful investing tools available to Canadians, allowing your investments to grow tax-free and letting you withdraw gains at any time without penalty or tax.
The hard part, of course, is deciding what to invest in. Personally, I’d choose an exchange-traded fund (ETF) that’s broadly diversified, low-cost, and avoids U.S. stocks altogether. That’s because even inside a TFSA, U.S. dividends are still hit with a 15% withholding tax, which you can’t recover.
That’s why I think the BMO S&P/TSX 60 Index ETF (TSX:ZIU) could be the best way to invest $7,000 in your TFSA this month. Here’s what you need to know about this ETF.
It is low-cost
When you invest in a fund, you pay an annual fee called the management expense ratio, or MER. This percentage covers the cost of running the fund, which includes everything from portfolio management to operations and admin. The MER is taken out of the fund’s assets, so it quietly eats into your returns each year whether the fund goes up or down.
ZIU has a 0.15% MER, which for a $7,000 investment works out to just over $10 annually. That’s a small price to pay for professional management and instant diversification.
By contrast, many Canadian equity mutual funds still charge MERs of 1.5% or more, which would cost you about $105 each year on that same amount. So skip the bank branch and the pricey advice. Open a Wealthsimple account and buy ZIU on your own. It’s that simple.
It is broadly diversified
This ETF tracks the S&P/TSX 60 Index, which represents 60 of the largest and most established companies in Canada. It’s market-cap weighted, meaning larger companies make up a bigger portion of the portfolio.
This gives the fund a natural tilt toward the giants, especially in sectors like banking, railways, and pipelines. While that does concentrate the portfolio a bit, you’re still getting access to the best-run businesses in the country in a single click.
Plus, you don’t need to worry about pruning the weeds. This index is self-cleaning. Companies that no longer meet the size or liquidity criteria get swapped out for stronger ones over time.
It is convenient
There’s no need to build your own Canadian stock portfolio from scratch when ZIU gives you a high-quality basket in one ticker. It trades just like a stock and has a tight bid-ask spread, which means you’re not giving up much on the buy or sell.
You also get paid to hold it. The ETF currently yields about 2.6%, distributed quarterly. In a TFSA, that dividend is totally tax-free. You can reinvest it to compound or use it to cover bills, your call.
