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

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.

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ETF helps you capture the opportunity of new technology, and auto rebalancing can reduce the downside risk of outdated tech.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.