When it comes to building your nest egg and saving and investing your hard-earned capital, the Tax-Free Savings Account (TFSA) is one of the best tools Canadian investors have, especially when you find the right TSX stocks and ETFs to buy and hold for years.
Long-term investing is all about taking advantage of the compounding effect. So when you can minimize the taxes you pay on the gains your investments generate, it significantly boosts the pace at which your capital is compounding.
That’s why finding high-quality and reliable stocks or ETFs and letting time do the work is one of the best strategies for investors.
And often, in order to stay disciplined and remove emotions, investors turn to high-quality ETFs that offer natural diversification, especially ones that track an index.
So, if you’re looking for top TSX ETFs to buy now and feel confident owning for the long haul, here are two of the best choices Canadians have.
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One of the top TSX ETFs to buy in your TFSA
If there’s one ETF that almost every Canadian investor could realistically consider, it’s the iShares S&P/TSX 60 Index ETF (TSX: XIU).
The XIU ETF is one of the most basic, straightforward, and dependable funds on the TSX that you can buy for a TFSA.
It tracks 60 of the largest and most established companies in Canada, giving you instant exposure to blue-chip leaders across the country. That makes it a naturally well-diversified investment, offering a mix of long-term growth and dividends.
Furthermore, because it focuses on the biggest names in Canada, its sector breakdown is exactly what you’d expect. The five largest allocations are financials (37.3%), energy (15.9%), basic materials (12.5%), technology (12%), and industrials (8.9%). Together, those sectors make up more than 85% of the ETF.
That’s why it’s one of the top TSX ETFs to buy for your TFSA. The mix of stocks gives you broad exposure to companies across the Canadian economy, aligning your portfolio’s growth with the long-term growth of the best companies in Canada.
At current prices, XIU offers a forward dividend yield of 2.5% and charges a management expense ratio of 0.18%.
One of the best funds for dividend investors
While the XIU ETF is one of the very best ETFs on the TSX to buy in your TFSA, the one drawback of it is a lower dividend yield. So, if you’re a dividend investor who prefers a higher-yield ETF, one of the best to buy is the BMO Canadian High Dividend Covered Call ETF (TSX: ZWC). In fact, the ETF is built specifically for income investors.
Just like the XIU ETF, it holds a diversified basket of large, stable Canadian dividend stocks. However, while the XIU only buys and holds the stock, the ZWC also uses a covered-call strategy to generate additional cash flow. This gives investors a steady stream of monthly income while still maintaining exposure to some of the most dependable companies in the country.
Its sector breakdown is also similar to the XIU ETF, but with dividend-focused sectors like utilities and telecom playing a bigger role, while lower-yield sectors like technology make up a much smaller portion. That combination and diversification create a strong foundation for steady distributions, even when markets are volatile.
And because it employs a covered-call strategy, the ETF offers a significant forward yield just shy of 6%. The trade-off is a higher MER of 0.72%, since the strategy requires more active management.
So, if you’re looking for a top TSX ETF to buy now that can generate you attractive passive income for years to come, there’s no question that the ZWC is one of the best.
