For most Canadian investors, the Tax-Free Savings Account (TFSA) should be doing far more than simply holding cash. The account is one of the most flexible investing vehicles available.
You can use it for aggressive growth, steady dividend income, or broad-market exposure while keeping capital gains and withdrawals completely tax-free. That flexibility is exactly why the TFSA remains such a powerful long-term wealth-building tool.
The challenge is choosing investments you can realistically hold through both good markets and bad ones. Here are three Canadian exchange-traded funds (ETFs) that can fit well inside a long-term TFSA portfolio.
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BMO S&P/TSX Capped Composite Index ETF
The BMO S&P/TSX Capped Composite Index ETF (TSX:ZCN) offers investors broad exposure to the overall Canadian stock market through a single ETF.
The fund tracks the S&P/TSX Composite Index and holds companies across virtually every major Canadian sector. Financials, energy, industrials, mining, telecoms, and utilities are all represented.
That diversification can help smooth returns over time while still giving investors exposure to the long-term growth of Canadian businesses, including small, mid, and large-cap stocks.
ZCN also keeps costs very low with an expense ratio of 0.06% and currently offers an annualized dividend yield of 2.1%. For investors looking for a low-maintenance TFSA core holding, broad-market ETFs like ZCN make a lot of sense.
BMO S&P/TSX 60 Index ETF
The BMO S&P/TSX 60 Index ETF (TSX:ZIU) takes a slightly different approach than ZCN by focusing specifically on Canada’s largest blue-chip companies, with less exposure to mid-caps and no small-caps.
The ETF tracks the S&P/TSX 60 Index and emphasizes large-cap Canadian firms with strong market positions and significant liquidity. These are many of the companies Canadians already interact with daily through banking, rail transport, telecom services, and energy infrastructure.
Because the portfolio focuses on larger firms, ZIU tends to tilt toward more mature dividend-paying businesses. The ETF currently carries an expense ratio of 0.14% while generating an annualized dividend of 2.1%.
BMO Canadian Dividend ETF
For investors more focused on generating passive income, the BMO Canadian Dividend ETF (TSX:ZDV) is another ETF worth considering. The ETF specifically targets Canadian dividend-paying stocks based on a three-year dividend growth rate, yield, and payout ratio.
Banks, pipelines, utilities, and telecoms make up a meaningful portion of the portfolio. Compared to a broad-market ETF, ZDV places a heavier emphasis on income generation while still maintaining diversification across multiple sectors.
The ETF currently offers an annualized dividend yield of 2.9% with an expense ratio of 0.4%. Inside a TFSA, that dividend income can continue compounding tax-free year after year.
