One of the most underestimated forces in investing is compounding. Not just price appreciation, but the quiet mechanics working in the background. Dividends buy more shares, which then pay even more dividends. Companies buy back stock, shrinking the share count and making your slice of the business more valuable without you lifting a finger. Over decades, that snowballs.
Now layer in a Tax-Free Savings Account (TFSA). Every dollar stays invested and keeps compounding. At that point, the biggest variables aren’t clever timing or stock picking. They’re staying invested, keeping costs low, and riding out volatility without panicking. With that mindset, here are three Canadian ETFs that I think have a real shot at helping patient investors build wealth over the next few decades.
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Canadian dividends
If income is the priority rather than pure share-price growth, the Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX:VDY) is the option to consider.
This ETF screens the Canadian market and holds stocks ranking in the top 55% by dividend yield. The result is a strong income profile, with a trailing 12-month yield of 3.6%, well above the broader Canadian market.
The trade-off is diversification. VDY holds just 56 stocks and is heavily concentrated in financials, particularly the big banks. In fact, two banks alone account for roughly a quarter of the portfolio.
Fees are higher than the broad-market options at 0.22%, but still low in absolute terms. For investors using a TFSA to reinvest dividends automatically, VDY can play a meaningful role in long-term compounding.
Canadian blue chips
Some investors are less comfortable with the added volatility that can come from mid- and small-cap exposure. If that applies to you, the Vanguard FTSE Canada Index ETF (TSX:VCE) is a reasonable middle ground.
VCE focuses exclusively on 80 large-cap Canadian stocks. It excludes most mid- and small-cap names but remains market-cap weighted, meaning the largest companies dominate the portfolio. As a result, the holdings overlap heavily with VCN, though with greater concentration in financials and energy.
The benefit is simplicity and stability. Fees are extremely low at 0.06%, and the trailing 12-month yield is 2.4%, slightly higher than the broader market due to the income profile of large-cap Canadian companies.
Broad Canadian stocks
For maximum diversification within Canada, the Vanguard FTSE Canada All Cap Index ETF (TSX:VCN) is the most complete option.
VCN represents what’s generally considered the investable Canadian equity market. It holds 207 stocks across large, mid-, and small-cap companies and is weighted by market capitalization. That means familiar names like banks, pipelines, railways, and energy companies naturally rise to the top.
Costs are about as low as they get. The expense ratio is 0.06%, or roughly $6 per year on a $10,000 investment. The trailing 12-month yield is 2.3%, and most of that income comes from eligible Canadian dividends.
