Safety is a primary consideration for the average Tax-Free Savings Account (TFSA) investor’s long-term strategy, especially within the stock market. Since no investment is entirely risk-free, a loss of capital results in a permanent loss of TFSA contribution room.
Diversification is the key to countering market volatility and preventing a loss from a single stock. Exchange-traded funds (ETFs) are ideal for risk-averse investors, including TFSA users. This asset class offers a higher floor of safety than relying on a single company’s share performance.
The prominent buy-and-hold options for the TFSA are iShares TSX High Dividend ETF (TSX:XEI), Vanguard Canadian High Dividend ETF (TSX:VDY), and BMO Equal Weight Banks ETF (TSX:ZEB). By holding a ‘basket’ of stocks or a combination of these funds, you’d have a balance of yield and stability.
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Foundational holding
BlackRock designed the iShares TSX High Dividend ETF to be a foundational holding for long-term investors. Like most Canadians ETFs, XEI is a qualified investment in a TFSA. It replicates the performance of the S&P/TSX Composite High Dividend Index. The monthly income it generates has no tax implications.
As of March 20, 2026, XEI has 75 stock holdings, ranging from small- to large-cap TSX-listed stocks. All 11 primary sectors are represented, but with heavier exposure to energy (31%), financial (29%), and utility (13%) sectors. Oil bellwether Suncor Energy is the top holding.
TSX dividend kings Canadian Utilities and Fortis are among the holdings of the diversified portfolio. Performance-wise, XEI is relatively stable. At $35.70 per unit, the year-to-date gain is 11%. The distribution yield is 3.7%. Given the monthly payout frequency, tax-free compounding is faster.
Passive funds management
Vanguard Canadian High Dividend ETF tracks the performance of the FTSE Canada High Dividend Yield Index. VDY currently holds 56 stocks, with no positions in the healthcare and real estate sectors. The exposure is heaviest on dividend-paying financial and energy stocks.
The Royal Bank of Canada and Toronto Dominion Bank, Canada’s two largest companies by market cap, are the fund’s top holdings. At $65.30 per unit, you can partake in the 3.6% dividend. Again, the monthly payout is the ETF’s distinct advantage.
Bedrock of stability
BMO Equal Weight Banks ETF is sector-specific, with exposure to only Canada’s Big Six banks. While the risk rating is medium to high, this ETF represents a bedrock of stability. Dividend longevity is the compelling reason why Big Bank stocks are staples in an investment portfolio.
According to BMO Global Asset Management, the fund’s manager, each security in this Index is allocated an equal weight rather than market capitalization. Equal weighting promotes balanced, stable growth. It also minimizes the impact of an underperforming Big Bank stock. ZEB trades at $57.51 per unit, with a yield of 3.1%. The distribution frequency is monthly.
Keep the “forever” mindset
TFSA investors can adopt a “forever” mindset with XEI, VDY, or ZEB as core holdings. These Canadian ETFs have been trading on the TSX for 14 years or more, delivering resilient returns since inception and across various market cycles. Their consistent track record of monthly dividend payments lends confidence to hold them for the long term.
