It takes a lot more to retire comfortably these days than it used to. With rent averaging more than $2,000 for a single person and food prices always going up, many Canadians are revising their opinions on what’s an adequate amount of money for retirement. It used to be that financial advisors would say that around $600,000 was enough. These days, most Canadians think it’s closer to $1 million, including both real estate and liquid savings. If you plan on retiring in Toronto, you’ll almost certainly need seven figures to retire comfortably.
The question is, how do you get to $1 million in retirement savings? If you have a very well-paying job, it shouldn’t be too hard, but if you are modestly compensated, you’ll need to be very diligent about investing consistently and careful about what you invest in. With that in mind, here are two Canadian exchange-traded funds (ETFs) that could help you fund your $1 million retirement.
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iShares S&P/TSX Capped Composite Index Fund
Vanguard S&P/TSX Capped Composite Index Fund (TSX: XIC) is one of Canada’s largest and most liquid (i.e., widely traded) index ETFs. Offered by BlackRock, one of the world’s premier asset managers, it is a staple of many Canadian investors’ portfolios.
iShares S&P/TSX Capped Composite index fund is known for its wide diversification. It is based on the S&P TSX Composite, an index that consists of 240 market cap-weighted stocks. XIC actually owns about 220 of the 240. So, the fund is widely diversified and represents its underlying index well.
What else does iShares S&P/TSX Composite Fund have going for it?
Plenty. It has a 0.05% management expense ratio (MER), making it among the cheapest of all Canadian funds. It has a very low bid-ask spread, which reduces hidden trading costs (that is, fees charged not by the fund’s managers but by market makers). And finally, the fund is run by a reputable asset manager — the largest index fund manager in the world — who can ensure that all day-to-day fund operations run smoothly.
Vanguard Emerging Markets All Cap ETF
Vanguard Emerging Markets All Cap ETF (TSX: VEE) is a Canadian emerging markets fund. It primarily holds shares in companies based in China, India, and other Asian nations. It also has some Latin America exposure.
VEE has been doing very well this year, outperforming the market by a wide margin. It’s no surprise that this is happening: Chinese stocks are doing much better than U.S. stocks and other global stocks this year, and they are a large component of VEE. Its top holding, Taiwan Semiconductor Manufacturing, has also really been crushing it.
Much like XIC, VEE has some highly desirable technical characteristics. It holds 6,038 stocks, which is a phenomenal amount of diversification. Its underlying portfolio has a low price-to-earnings ratio (16) and a high earnings-growth rate (16%). And finally, the fund is cheap, with a 0.25% MER. At a time when many of the world’s smartest investors are prioritizing emerging market investments, VEE is looking like a solid buy.
