There’s no question that the Tax-Free Savings Account (TFSA) is easily the most powerful tool that Canadian investors have available for building long-term wealth. When you buy high-quality Canadian stocks or exchange-traded funds (ETFs) in your TFSA, every dollar of growth inside the account is completely tax-free, whether it comes from capital gains, dividends, or distributions.
When it comes to putting your hard-earned money to work, what stocks you choose is always of importance. Because of the tax-free nature of the TFSA and the limited contribution room available, the investments you choose to hold in your TFSA matter a lot more than most people realize.
While picking individual stocks can be a great way to grow your portfolio, it’s not always the best option for every investor. Some people don’t have the time, interest, or confidence to research individual companies. Others simply prefer a more hands-off approach. That’s where ETFs come in.
ETFs are ideal for many reasons. First and foremost, especially for new investors, they offer instant diversification, professional portfolio construction, and low fees, all in a single investment.
Furthermore, when you buy high-quality Canadian ETFs in your TFSA, they can quietly compound your capital over decades without requiring constant attention or active management.
In fact, in many cases, a high-quality ETF can consistently outperform a poorly constructed stock portfolio simply because it keeps investors disciplined and invested.
Another benefit of ETFs is that they make it easier to stay invested through market volatility. Instead of worrying about the performance of one company, you’re owning a broad basket of businesses or assets. That diversification can help reduce risk, smooth returns, and make it easier to hold your investments during market pullbacks.
So, if you’re looking for simple, effective investments you can buy once and hold forever in your TFSA, here are four Canadian ETFs worth considering for the long haul.
Four of the best ETFs to buy in your TFSA
If you’re looking for the most straightforward way to own Canada’s best companies in your TFSA, the iShares S&P/TSX 60 Index ETF (TSX:XIU) is hard to beat. The XIU tracks the S&P/TSX 60 Index, which includes the largest and most established businesses in the country. That means with a single investment, you get exposure to banks, energy producers, railways, telecoms, and utilities.
You’re essentially buying a basket of Canada’s blue-chip stocks, which is why the XIU is one of the best and simplest Canadian ETFs to buy in your TFSA today.
In addition to the XIU ETF, the BMO Canadian High Dividend Covered Call ETF (TSX:ZWC) is another high-quality pick. The ZWC is an especially strong investment for TFSA investors who want higher income without having to pick individual dividend stocks.
The fund owns a diversified portfolio of high-quality Canadian dividend payers. In fact, many of the stocks that the XIU ETF owns are also held by the ZWC. The main difference is that the ZWC enhances income for investors by using a covered call strategy.
That approach boosts cash flow, which is especially appealing inside a TFSA where distributions are tax-free. So, although it sacrifices some capital gains potential in order to pay a higher yield, it’s one of the best stocks that dividend investors can buy in their TFSAs.
In addition to diversifying your money across different sectors, it’s also important to diversify geographically. That’s why another one of the best Canadian ETFs to buy in your TFSA today is the BMO S&P 500 Index ETF (TSX:ZSP).
The ZSP is ideal because it’s Canadian-listed, yet it gives you exposure to the U.S. market by tracking the S&P 500.
That means you instantly gain exposure to some of the largest and most dominant companies in the world, including leading technology, consumer, and industrial businesses.
Lastly, while bonds aren’t the most exciting investment, the BMO Aggregate Bond Index ETF (TSX:ZAG) can play an important role in a long-term TFSA portfolio.
This ETF provides exposure to a broad mix of Canadian government and investment-grade corporate bonds, which helps reduce volatility and provide stability during market pullbacks.
So if you’re a dividend investor looking to boost your portfolio’s yield with reliable income, or you’re just looking to shore up your TFSA, the ZAG is one of the best ETFs that Canadian investors can buy now.
