You can build a perfectly reasonable portfolio with a diversified asset-allocation exchange-traded fund (ETF). That approach works, and for many investors it is more than enough. If you want a bit more control, though, using just three ETFs can get you most of the way there without adding complexity.
All it takes is one ETF for U.S. equities, one for Canada, and one for international markets. Together, they provide global diversification, low costs, and exposure to different growth drivers, all while remaining easy to manage inside a Tax-Free Savings Account (TFSA). Here is a three-ETF buy-and-hold-forever mix that does exactly that.
Source: Getty Images
U.S. equities
iShares Core S&P 500 Index ETF (TSX: XUS) provides exposure to the S&P 500, which tracks 500 large-cap U.S. companies selected based on size, liquidity, and profitability.
This ETF gives you access to many of the world’s most dominant businesses across technology, healthcare, financials, and consumer sectors. These companies generate a large share of global earnings and have historically been strong long-term compounders.
The expense ratio for XUS is low at 0.09% annually, making it a cost-efficient way to anchor growth. This is substantially lower than comparable mutual funds available to Canadians.
Canadian equities
For domestic exposure, BMO S&P/TSX Capped Composite Index ETF (TSX: ZCN) covers the bulk of the Canadian equity market.
ZCN holds large- and mid-cap Canadian companies across sectors such as financials, energy, materials, industrials, and telecommunications.
The market-cap-weighted structure means banks, pipelines, railways, and energy companies make up a meaningful portion of the portfolio, which reflects how Canada’s market is built.
The ETF is very inexpensive at a 0.06% expense ratio and pays a 2.22% annualized yield that compounds tax-free inside a TFSA.
International developed markets
To round out global exposure, Vanguard FTSE Developed All Cap ex North America Index ETF (TSX: VIU) provides access to developed markets outside North America.
VIU covers Europe, Australasia, and parts of the Far East, including Japan, the United Kingdom, France, Germany, Switzerland, and Australia. Unlike narrower international ETFs, it includes large-, mid-, and small-cap stocks, which broadens diversification across different business models and stages of growth.
The expense ratio is higher at 0.23%, which reflects the added complexity of managing a globally diversified portfolio across multiple markets, currencies, and settlement systems.
VIU also offers a higher-income component, with a trailing yield of about 2.48%, which can help smooth returns in a TFSA.
