2 Canadian ETFs I’d Lock Into a TFSA and Never Touch

I hold iShares S&P/TSX 60 Index Fund (TSX:XIU) in my TFSA to this very day.

Key Points
  • If you're going to be investing in a TFSA, it pays to hold exchange traded funds (ETFs) inside of it.
  • Index ETFs in particular tend to reduce your risk while dramatically increasing your expected returns.
  • In this article I explore why I'd be holding ETFs in my TFSA today.

Are you looking for quality Tax-Free Savings Account (TFSA) investments that you can lock into and never touch again?

If so, exchange-traded funds (ETFs) are just what the doctor ordered.

Individual stocks sometimes undergo unexpected and staggering risk events that destroy their value for decades.

Mutual funds, meanwhile, lock you in so you can only sell your positions once or twice per day.

The obvious middle ground is index ETFs. Like stocks, they trade eight hours a day every day except weekends. Like mutual funds, they offer a lot of diversification under the hood. In this article, I’ll explore two Canadian ETFs I’d lock into a TFSA and never touch — including one for which I have actually done so!

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

Source: Getty Images

iShares S&P/TSX 60 Index Fund

iShares S&P/TSX 60 Index Fund (TSX: XIU) is a case of me putting my money where my mouth is, as I actually own the fund! XIU is one of the longest-standing assets in my portfolio, having been there from the portfolio’s inception in 2019. I have no plans of ever selling it.

Why did I invest so much money into XIU back in the day, and why do I hold so much of it now?

It comes down to a few things.

First, XIU is a well-diversified fund. It tracks the TSX 60 Index, an index of the 60 largest Canadian companies by market cap. This is an adequate amount of diversification for a Canadian large-cap fund.

Second, XIU has a lot of dividend potential. When I first bought it, it was yielding 2.8%, which seemed pretty good to me at the time. Since then, the fund has shot up dramatically in price, and the 30-day annualized yield is only 2.15%. Stocks have risen a lot, alas! But if the country’s companies continue raising their dividends going forward, as they’ve done historically, then the yield could go much higher.

Third and finally, XIU is very liquid and widely traded. This fact reduces the fund’s bid-ask spread: what the buyer bids and the seller asks. There is always a spread of this type for any security; market makers, who trade securities for you, pocket it as a fee. The lower the spread, the less money you lose to market makers, and XIU’s spread is so small you’d barely notice it.

Canadian Dividend ETF

BMO Canadian Dividend ETF (TSX: ZDV) is a dividend-themed fund administered by Bank of Montreal. It has a 2.8% trailing dividend yield — much higher than average for the Canadian market. The fund excludes non-dividend stocks and low-dividend stocks, which ups its income potential.

Over a long enough period of time, there’s no reason to prefer dividends over non-dividend-paying stocks. However, in today’s market, many non-dividend-growth stocks (e.g., tech stocks) are beginning to look overheated. By screening for dividends, you implicitly give your portfolio a value tilt. In 2026, that might make a lot of sense. And while ZDV’s 0.39% fee isn’t dirt cheap, it isn’t nosebleed expensive either.

The bottom line

The bottom line on investing in 2026 is that it’s a good time to get defensive. We’ve seen an unprecedented tech-driven market rally lasting decades; now may be the time for a cool-off. Either one of the two stocks mentioned in this article would help you do that.

Fool contributor Andrew Button has positions in the iShares S&P/TSX 60 Index Fund. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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