“Forever” is a long time in investing. Countries can lose their edge. Hot sectors can cool off. But here’s what I’m willing to bet on: over the next several decades, the global stock market will keep going up.
Why? Because the drivers of long-term stock returns – earnings growth, share buybacks, and dividends – are durable. And when you invest across the entire world, you’re not relying on any one company, sector, or country. You’re just riding the average, and historically, that’s been enough to deliver 7% to 9% annual returns before inflation.
To put this into practice, all you need are three TSX-listed exchange-traded funds (ETFs). Here’s how I’d build a simple, diversified, buy-and-hold portfolio with them.
60% in U.S. Stocks
The U.S. stock market is home to some of the largest and most influential companies in the world. Think tech giants, consumer brands, healthcare leaders, and industrial innovators.
By allocating most of your portfolio here, you’re tapping into the engine room of global capitalism. U.S. companies have historically delivered strong returns, and the country continues to lead in profitability, innovation, and economic scale.
To do this simply and cheaply, I like the Vanguard S&P 500 Index ETF (TSX:VFV). It tracks the S&P 500 – a market-cap weighted index of 500 of the largest U.S. companies, and has an ultra-low management expense ratio (MER) of 0.09%.
That means for every $10,000 you invest, you’re paying only about $9 per year in fees. And because it’s Canadian-listed and trades in Canadian dollars, there’s no need to pay extra for currency conversion when buying it.
20% in Canadian Stocks
Canadian stocks offer a few unique advantages, especially inside a TFSA. First, there’s no 15% foreign withholding tax on dividends from Canadian companies. Second, you avoid currency risk because you’re investing in your home currency.
While Canada’s stock market is smaller and more concentrated in banks, energy, and materials, these sectors tend to pay strong dividends and provide some stability. For this slice, I like the iShares Core S&P/TSX Capped Composite Index ETF (TSX:XIC).
It holds nearly all publicly traded Canadian companies, from the biggest blue chips to smaller up-and-comers, with a 10% cap on any single stock to keep things balanced. Best part? It has a rock-bottom MER of just 0.06%.
20% in International Stocks
To round things out, you want exposure to companies outside North America, from developed markets like Japan, Germany, and the U.K., to others across Europe and Asia-Pacific.
These regions may not always match U.S. returns, but they add valuable diversification. International stocks also tend to trade at lower valuations and offer higher dividend yields.
A good pick here is the BMO MSCI EAFE Index ETF (TSX:ZEA). It tracks large and mid-sized companies across Europe, Australasia, and the Far East (that’s what EAFE stands for).
While slightly more expensive, its MER is 0.22% – which comes out to about $11 per year on a $5,000 investment. That’s still cheap for broad international diversification.
