Want a $1 Million Retirement? 2 Simple Index Funds to Buy and Hold for Decades

iShares S&P/TSX Capped Composite Index Fund (TSX:XIC) is a great fund to buy and hold for decades.

| More on:
Key Points
  • Growing Retirement Targets: With the rising cost of living, Canadians are shifting their retirement savings goal from $600,000 to $1 million, especially for comfortable living in high-cost areas like Toronto.
  • iShares S&P/TSX Capped Composite Index Fund (XIC): This fund offers broad diversification with exposure to 220 market cap-weighted stocks, low costs with a 0.05% MER, and a trusted asset manager in BlackRock, making it a solid choice for steady investment growth.
  • Vanguard Emerging Markets All Cap ETF (VEE): VEE provides diversified exposure to emerging markets, mainly in Asia and Latin America, with strong recent performance and favourable valuation metrics, offering a compelling growth opportunity for retirement portfolios.

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.

a man relaxes with his feet on a pile of books

Source: Getty Images

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.

Fool contributor Andrew Button holds positions in Vanguard Emerging Markets ETF. The Motley Fool recommends Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

More on Retirement

man in bowtie poses with abacus
Retirement

How Much TFSA Income is Too Much for OAS Eligibility?

Canadians should take full advantage of their TFSA as part of their retirement plan to help avoid OAS clawback.

Read more »

ETFs can contain investments such as stocks
Dividend Stocks

VFV Isn’t a Complete Portfolio: Here’s What Canadian Investors May Be Missing

VFV feels like a complete portfolio, but it’s really a concentrated bet on U.S. large caps and the U.S. dollar.

Read more »

senior man and woman stretch their legs on yoga mats outside
Energy Stocks

Retirees Love Dividends: Here’s the Number That Matters More Than Yield

A tempting 7% yield can vanish fast, so checking the payout ratio helps confirm a dividend is actually sustainable.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

A 6% Yield Won’t Save a Weak Dividend: I’d Buy This Growing Payout Instead

A lower 3.3% yield can beat a 6% yield over time if the dividend keeps growing, and Manulife is showing…

Read more »

c
Stocks for Beginners

You Don’t Need a Million-Dollar Salary to Build a Million-Dollar TFSA

A million-dollar TFSA is built with ordinary annual contributions and decades of compounding, not an extraordinary salary.

Read more »

infrastructure like highways enables economic growth
Dividend Stocks

A $7,000 TFSA Contribution Could Become $70,000: Here’s the Math

A single $7,000 TFSA contribution can grow into $70,000 over decades if you pair time with a durable grower like…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

The First $100,000 Is the Hardest: Here’s How a TFSA Can Do the Rest

Hit $100,000 in a TFSA and compounding can start doing more work than your annual contributions.

Read more »

Hand Protecting Senior Couple
Retirement

TFSA Retirement Income: 1 Top TSX Dividend Stock to Consider Now

This company has increased its dividend annually for the past three decades.

Read more »