So you want future growth over present income. That’s great, because a dollar today is worth more tomorrow, thanks to the time value of money.
If that’s your mindset, don’t bother chasing high-yield dividend stocks or monthly income funds. Instead, focus on an exchange-traded fund (ETF) that prioritizes capital appreciation.
For your $7,000 Tax-Free Savings Account (TFSA) contribution in 2025, I like the look of the iShares Canadian Growth Index ETF (TSX:XCG). Here’s why.
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It doesn’t mimick the broader TSX
Most broad Canadian equity ETFs are loaded with dividend-paying blue chips from the financial and energy sectors. XCG is the opposite. This ETF holds just 35 stocks, each screened for above-average earnings growth compared to the broader TSX.
In practice, this gives you heavier exposure to faster-growing sectors like industrials (30%) and technology (20%). You’ll also find some consumer discretionary and staples names, companies that are typically more growth-oriented than the utilities and telecoms you’d get in a traditional TSX fund.
Other things to note
XCG isn’t built for income, as it pays just a 0.48% dividend yield. That’s not going to help you cover bills, but it’s not the point. If your focus is on growing wealth, this ETF has done well. Over the past three years, it has returned 14.1% annualized, versus 11.16% for the S&P/TSX 60.
The only real downside is its management expense ratio (MER) of 0.55%, which is a bit steep for a passive growth fund. If you like the idea but not the fee, you could replicate the strategy yourself. Just buy the top 10 holdings in your TFSA and check in every few months to update the list as needed.
The Foolish takeaway
If you’re not using your TFSA to compound growth over time, you’re wasting one of the most powerful tax tools available to Canadians. Every dollar of capital gains, interest, or dividends earned inside a TFSA is completely tax-free, no matter how large your balance grows.
That makes it the perfect account for long-term investing, not short-term saving. Treating your TFSA like a glorified chequing account means missing out on years of untaxed growth that could fund your retirement, a home, or early financial freedom.
XCG isn’t perfect – it’s a bit expensive for what it offers and it doesn’t give you broad exposure to the entire Canadian market. But it does what it says on the label: focuses on companies with higher growth potential.
If your goal is to build wealth steadily without relying on income along the way, a growth-oriented ETF like this can be a smart core holding. And inside a TFSA, all that upside goes straight to you, with no taxes and no hassle.
