Most Canadian investors naturally lean toward Canadian stocks in their Tax-Free Savings Account (TFSA). That instinct isn’t necessarily wrong. Canadian securities are priced in Canadian dollars, avoid foreign dividend withholding issues in this account, and often pay attractive dividends. Those factors make domestic equities a convenient starting point for many portfolios.
However, there’s a line where familiarity turns into overconcentration. Canada’s stock market is relatively small and dominated by a handful of industries. Financials, energy, and materials make up a large portion of the index, while entire areas of the global economy — such as major technology platforms and global consumer brands — barely appear at all.
That’s why building a TFSA strategically usually means pairing Canadian exposure with something broader. One ETF that fits that role particularly well is the iShares Core MSCI All Country World ex Canada Index ETF (TSX: XAW).
Source: Getty Images
Why diversification matters for Canadian investors
Canadian investors often hold more domestic stocks than global market weights would suggest.
Part of that comes from practicality. Investing locally avoids currency conversions and keeps portfolio values aligned with the Canadian dollar. Canadian companies also tend to distribute steady dividends, which many investors appreciate.
But there is another layer many people overlook. Your financial life is already connected to Canada in multiple ways. Your job income is paid in Canadian dollars. Your housing market exposure is domestic. Even your retirement spending will likely happen in Canada.
If your investments are also concentrated in the same economy, you may unintentionally be stacking risk on top of risk. Adding international equities spreads that exposure across many economies, industries, and currencies.
That kind of diversification can help stabilize a portfolio when one country or sector goes through a difficult period.
Why I like this ETF
XAW is designed to provide global stock exposure while intentionally leaving Canada out of the equation.
That design makes it especially useful for Canadian investors who already hold domestic equities elsewhere in their portfolio. Instead of duplicating the same banks and energy companies, this ETF expands your reach to companies around the world.
The portfolio includes thousands of stocks from developed and emerging markets, with significant exposure to the United States, Europe, Japan, and other major economies.
This global mix adds industries that are underrepresented in Canada, including large technology companies, global healthcare leaders, and multinational consumer brands.
Because it excludes Canadian companies entirely, XAW works well as a balancing tool. Investors can combine it with Canadian equity ETFs and easily adjust how much of their portfolio is domestic versus international.
Another advantage is cost efficiency. The ETF carries a management expense ratio of 0.22%, which is relatively low considering the breadth of international exposure it provides.
For investors looking to strengthen the global side of their TFSA without making their portfolio complicated, this ETF can serve as a simple and effective anchor.
