The 1 Strategic Canadian ETF I’d Make Sure Every TFSA Includes

Discover how to build a successful TFSA portfolio using strategic asset allocation in Canadian ETFs to mitigate risk.

| More on:
Key Points
  • Incorporating a Canadian ETF like the iShares S&P/TSX Capped Information Tech Idx ETF (XIT) into your TFSA can provide exposure to the technology sector's growth potential while reducing risks through automatic rebalancing and diversification.
  • XIT allows you to invest in leading tech stocks like Shopify, Constellation Software, and Celestica at a more affordable entry point, offering liquidity and mitigating individual stock volatility within your TFSA portfolio.

Building your Tax-Free Savings Account (TFSA) portfolio? High growth and high dividend stocks should be your ideal choice to make the most of the TFSA. It allows your investments to grow tax-free. It means you can rebalance your portfolio within the TFSA without triggering any tax event from the sale of shares.

ETF is short for exchange traded fund, a popular investment choice for Canadians

Source: Getty Images

Why every TFSA must have a Canadian ETF

Individual stocks carry company-specific risk that could make your portfolio volatile in difficult times. A strategic asset allocation in a Canadian ETF can mitigate risk by spreading your investments across stocks and automatically rebalancing alongside the market movement.

What does this mean?

Many Canadians delay investing in stocks due to fears of parting with their cash for the long term. Stock market investing brings company-specific risk and opportunity. When you buy the dip of a fundamentally strong stock, you know it will give you good returns. However, when those returns will come is a matter of forecast. This creates a liquidity risk. When you need money the most, the stock may not be at its best price, and you might be forced to sell at a loss.

A market ETF reduces this risk as it is relatively less volatile than an individual stock. An ETF mirrors an index and quarterly rebalances stock weightage to match the index. This rebalancing automatically reduces exposure to poor-performing stocks and increases exposure to the performing ones.

One strategic Canadian ETF every TFSA should have

As the world moves towards artificial intelligence (AI), the technology sector is set to experience high growth. However, it comes with extreme volatility because of the disruptive nature of the tech revolution. For instance, cloud replaced licensing software in many applications, and now AI is replacing some basic software. While new technology disrupts older technology, it also creates new opportunities for upgrade and efficiency.

A technology ETF helps you capture the opportunity of new technology, and auto rebalancing can reduce the downside risk of outdated tech. iSharesS&P/TSX Capped Information Tech Idx ETF (TSX: XIT) invests in some resilient technology stocks. It has around 25% holdings in each Shopify, Constellation Software (TSX: CSU), and Celestica (TSX: CLS).

The three stocks are market leaders in their segments of e-commerce, vertical-specific software, and original design manufacturers (ODMs).

Celestica stock

Celestica’s stock has surged 50% in April as it onboarded a third hyperscaler customer. The company will manufacture network switches for Advanced Micro Devices’s Helios rack-scale AI platform. Celestica is riding the AI rally by providing assembly and manufacturing services for cloud networking and AI data centres. The company has graduated from being a contract manufacturer to ODM and is preferred by all big names in the AI space.

Constellation Software

Constellation Software has been in a downturn since its founder resigned for health reasons. Although the chief operating officer has taken the reins, a business succession is never without hiccups. The timing of the succession has made investors apprehensive as AI is challenging the need for sticky licensing software, on which Constellation’s portfolio is built. The company even reported a 30% decrease in net income in 2025 as the acquisition of Asseco Poland shares increased its finance cost.

However, its secular growth trend of acquiring cash flow-rich vertical-specific software companies and reinvesting that cash to buy more companies remains intact. The company will work towards reducing its leverage and increasing its free cash flow as opportunities come. That will drive long-term growth.

How the XIT ETF can help your TFSA

If you were to invest $10,000 each in the above three stocks on January 1, 2026, your portfolio value would be volatile. If it weren’t for Celestica, the other two stocks would have reduced portfolio value significantly. The XIT mitigates this blow and gives you similar exposure.

Also, you can get exposure to all three stocks for just $70.6 per unit of the XIT ETF, for which you would otherwise need more than $3,200 to buy one stock of each.

Share CountInvested AmountStock1-Jan-2623-Apr-26Portfolio Value
24$10,000Celestica$414.70$537.50$12,900.00
46$10,000Shopify$216.13$170.27$7,832
3$10,000Constellation Software$3,239.00$2,501.00$7,503
Individual Stocks$3,870$3,208.77$28,235.42
384$30,000XIT ETF$78.08$70.58$27,102.72

The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Advanced Micro Devices, Celestica, and Constellation Software. The Motley Fool has a disclosure policy. Fool contributor Puja Tayal has no position in any of the stocks mentioned.

More on Tech Stocks

moving into apartment
Tech Stocks

Why Shopify Stock Has Earned a Permanent Spot in My Portfolio

Find out why Shopify remains a key e-commerce player despite setbacks and evolving market dynamics. SHOP deserves a permanent spot…

Read more »

cookies stack up for growing profit
Tech Stocks

3 TSX Stocks to Buy With $2,000 This September

These are the perfect TSX stocks to buy on the recent September pullback. These three stocks could multiply in the…

Read more »

technology moves fast
Tech Stocks

Hey, Silicon Valley: Canadian Tech Stocks Just Delivered a 981% Average Return

The 2026 TSX30 list features five Canadian technology companies whose average return reached an extraordinary 981%.

Read more »

scientist monitors quantum computer
Tech Stocks

Quantum Computing Stocks Are Hot: Here’s a Canadian One to Buy Now

Explore the fascinating world of Quantum Computing and its potential to revolutionize technology and problem-solving.

Read more »

ETFs can contain investments such as stocks
Tech Stocks

Your TFSA Owns 3 ETFs: It May Still Be 1 Big Technology Bet

Three ETFs can still overlap heavily, leaving you with one big U.S. mega-cap tech bet instead of true diversification.

Read more »

young people stare at smartphones
Tech Stocks

Here’s a TFSA Stock Yielding 0.4% With Reliable Quarterly Payments

Apple (NASDAQ:AAPL) has a small dividend, but it's growing steadily. After a strong device showcase, perhaps the best spot for…

Read more »

The Meta Platforms logo displayed on a smartphone
Tech Stocks

1 Decision Today Could Change Your Financial Story

Contributing to and investing with your TFSA in names like Meta Platforms (NASDAQ:META) could change your long-term financial trajectory.

Read more »

Canadian dollars in a magnifying glass
Tech Stocks

BlackBerry Stock Is Up More Than 150%: Here’s the Number I’d Check Before Buying

BlackBerry’s huge 2026 rally has turned its turnaround into an AI-and-QNX growth story, but now it must prove it with…

Read more »