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Recommended Stocks (ETFs) for Your RRSP, RRIF, RESP, RDSP, TFSA, FHSA or Non-Registered Portfolio - for Novice Investors
This advice is for any age of novice investor!
Hold Foreign Investments in a US$ Brokerage Account
Investments For Your Registered Accounts
Investments For Your Non-Retirement Registered Accounts
Investments For Your Non-Registered Accounts
Advantages of Above Investment Plans
Reducing Investing Risk and Volatility
If you have read our Risk article, you will notice that cash and bonds are rated less risky than stocks. This is true in the short term, but if you look at our table of investment returns, you will see how stocks have greatly outperformed bonds over time. You won't see the volatility that happened along the way.
From our point of view, the asset which provides the best return over a long period of time is the least risky. Therefore, we consider a well diversified portfolio of exchange-traded funds (ETFs), which are funds which hold stocks, to be less risky than bonds. When you own stocks, you actually own part of a company. When you own bonds, you are lending money to a company or a government. Would you rather own a company, or lend money to it? We don't hold any bonds now, but we have held Canadian federal and provincial bonds in the past, when they were yielding over 9%. If their returns go that high in the future we may buy them again, but only inside RRSPs.
You can eliminate some of the volatility from stocks by following 4 simple guidelines.
 | Buy stocks slowly (dollar cost averaging). Don't try to time the market. Buy stocks at fixed intervals 2 to 4 times a year over a long period of time (20 years or more). |
| Buy stocks in all global markets (diversification). This reduces currency fluctuations. |
| Buy stocks across all sectors of the economy (diversification). |
| Hold stocks for a long time (buy and hold). You can hold the recommended ETFs from the day you are born till the day you die. |
Unfortunately, you can't eliminate all the volatility from your portfolio. The individual ETFs will rise and fall continually, and the whole portfolio will suffer a large drop (10% to 20%) approximately once a decade. Over a long period of time the ETFs will rise, because the stocks that make up the ETFs slowly increase in value. If the value of an individual stock falls continuously, it will gradually represent a lower percentage of the ETF, and eventually it will be replaced with another stock.
Hold Foreign Investments in a US$ Brokerage Account
Make sure that any foreign investments are held in a US$ brokerage account, so that there are no exchange premiums charged except when funds are deposited or withdrawn. Regarding the holding of foreign stocks, see our articles on Risk as it Relates to Investing, Currency Risk, and Tax Treatment of Investments in Foreign Shares.
Investments For Your Registered Accounts:
We recommend that you buy the following ETFs (or equivalents), in equal amounts. The US$ ETFs will be purchased in US$, so the market value of the Canadian $ equivalent of each ETF should be about 25% of the total of the 4 ETFs purchased. The order in which you purchase them doesn't matter. Just buy at market (market order), because the spread between bid and ask is only pennies. We believe that this portfolio of investments will provide an average annual return of 9% or more. Regarding the holding of foreign stocks in your RRSP, see our articles on Washing Trades and Currency Risk.
You should rebalance your portfolio as you purchase more ETFs, so that you continue to own approximately the same market value in Canadian dollars in each ETF.
The table below shows how the ETFs are diversified by country:
| Ticker Symbol |
Traded on |
Fund Name |
Issuer | Holdings |
| XIC | TSX | iShares Cdn Core S&P/TSX Capped Composit Index | BlackRock | approximately 240 largest Canadian stocks |
| SPY | Amex | S&P Depositary Receipts | State Street | 500 largest US stocks |
| VEU | Amex | Vanguard All-World ex-US | Vanguard | approximately 2,821 stocks - represents the whole world except the US |
| XLU | Amex | Select Sector SPDR Utilities | State Street | 28 US utility stocks |
If you don't want to hold any stocks or ETFs in a US$ account, you could just purchase XIC and VXC. VXC is another Vanguard fund, holding companies from around the world except Canada. It is traded on the Toronto Stock Exchange. Its management fee is slightly higher than the others, 0.22% as of December 31, 2023.
As of December 30, 2023, all of the 4 ETFs in the above table had management expense ratios (MERs) of 0.10% or less. However, these ratios change over time, so this is one of the things you should be checking prior to buying an ETF. See the links to fund information below the next table.
The table below shows how the ETFs are diversified by economic category, and the average % of your portfolio in each category when equal amounts of each of the ETFs below are held. Again, these are percentages that can change over time. If you want to hold bonds, then reduce the XLU by the amount of bonds purchased.
| World Economy by Category | ||||
| Sectors |
Industrials Materials Energy |
Consumer
Discretionary Consumer Staples Healthcare Technology |
Pipelines, Utilities Telecommunications |
Financial |
| Volatility | high | medium | low | medium |
| Interest Rate Sensitivity | medium | low | high | high |
| % of ETF Holdings in Each Category | ||||
| XIC | 38% | 15% | 10% | 37% |
| SPY | 17% | 57% | 8% | 18% |
| VEU | 27% | 40% | 8% | 25% |
| XLU | 0% | 0% | 100% | 0% |
| average % in each category | 21% | 28% | 32% | 20% |
Note: We've combined VWO, VGK and VPL and replaced them with VEU, which was not available when we first created this table. We also replaced XIU with XIC because of the much lower MER.
Information on these funds (distribution history, fund performance, fund holdings, etc.) can be found on the following websites:
NYSE Euronext Exchange Traded Funds - search by ticker for any of the above funds except XIU
When we first started investing, there were no ETFs available. When we first compiled the above information, there were very few ETFs available. These are among the lowest cost (MER) ETFs available. This is meant as a guide for novice investors, or for people who have no interest in picking their own stocks. There are now many choices available in ETFs, but the main point is to choose low cost, broadly based (diversified by country and economic category) ETFs which hold large, well-established corporations (less risk).
Investments For Your Non-Retirement Registered Accounts
The non-retirement registered accounts are TFSAs, FHSAs, RDSPs and RESPs. The retirement registered accounts are RRSPs and RRIFs.
Of the above ETFs, the best ones to put into these accounts would be ones in which the return is mainly capital gains, not dividends.
There is 15% withholding tax deducted from dividends paid into registered accounts, other than RRSPs and RRIFs, from any of the above ETFs (because they are foreign) except for XIC. This is because these accounts are not considered "retirement savings accounts" as per the tax treaty with the US. RRSPs and RRIFs are considered retirement savings accounts, so there is no 15% withholding tax from US-based foreign stocks. This is not necessarily the case with American Depositary Receipts, which may be subject to withholding tax.
If you are using your TFSA as an emergency fund, you may want to hold a certain amount of it in cash, T-bills, or GICs. However, ETFs are also okay for an emergency fund, because trades are now settled 1 business day after the sale, so funds can still be obtained quickly. The difference is that ETFs will vary in price, so it is best to plan to hold them for a long time.
Investments For Your Non-Registered Account
If you have investments in a non-registered account as well as investments in RRSPs, FHSAs, and TFSAs, it is best to hold the foreign investments in the registered accounts, and Canadian stocks that pay eligible dividends in the non-registered account. This allows you to take advantage of the enhanced dividend tax credit. However, if you are a student or have tuition and education tax credits carried forward, the dividend tax credit may not be helpful. In this case, see:
| Tuition/Dividend Tax Credit Problem, and |
| Tuition Transfers and Dividend Income - could also be a problem |
If you want to hold only 1 investment you should buy iShares Cdn Core S&P/TSX Capped Composite Index (XIC), but the dividend yield is only 2.82% as at August 8, 2024, and it would be more volatile that the 20 stocks below.
The following list of 18 Canadian stocks could each make up a little over 5% of your total non-registered portfolio. These stocks were chosen because most of them pay a good dividend (average 4.75% as of August 8, 2024), are diversified internationally and are good quality (blue chip) low risk stocks which can be held forever. These stocks would be more interest-rate sensitive than XIC. We own most of these stocks, in non-registered accounts.
Financial:
| Bank of Montreal (BMO) |
| Bank of Nova Scotia (BNS) |
| Manulife Financial Corporation (MFC) |
| Power Corporation of Canada (POW) |
| Royal Bank (RY) |
| Sun Life Financial Inc. (SLF) |
| Toronto-Dominion Bank (TD) |
Pipelines:
| Pembina Pipeline Corporation (PPL) |
| TransCanada Corp. (TRP) |
Utilities:
| Atco Ltd. (ACO-X) |
| Emera Incorporated (EMA) |
| Fortis Inc. (FTS) |
Telecommunications:
| Rogers Communications Inc. (RCI-B) |
| Telus Corp. (T) |
Other:
| Canadian National Railway Company (CNR) |
| George Weston Limited (WN) |
| Magna International Inc. (MG) |
| Nutrien Ltd. (NTR) |
Advantages of Above Investment Plans
The advantages of following any of the above plans are:
| low or no management expense ratio (MER) |
| holds largest public companies worldwide (world diversification) |
| industry diversification (holds all sectors of the economy) |
| reduced volatility because of diversification |
| buying slowly reduces volatility |
| "buy and hold" reduces the number of decisions you have to make |
| "buy and hold" defers taxes on capital gains outside of RRSPs |
| stocks outperform other investments over the long term |
| stocks protect against inflation |
| easy to buy or sell (widely traded) |
| easy to liquidate part of your investment, not like real estate or a business |
| no front-end or back-end loads |
| XIC/XIU - holding Canadian $ reduces currency fluctuations |
| XIC/XIU - large commodity % reduces interest rate sensitivity |
| VEU - includes all world except US |
| XLU - utilities reduce volatility |
| The risk of the overall portfolio is less than the risk of the individual ETFs |
| The risk of an ETF is less than the risk of the individual stocks it holds |
Our Investments
We mostly buy good quality (blue-chip) stocks and ETFs with the intent of holding them forever.
We've contributed the maximum to our RRSPs (which are now RRIFs) and TFSAs.
In our non-registered accounts we hold almost all Canadian stocks (not ETFs), including most of the above. We do a lot of research on companies, reviewing their fundamentals. The non-registered investments make up just over 50% of our total investments.
We also borrow to invest in Canadian stocks - see our Borrow to Invest article.
Holding Canadian stocks in non-registered accounts takes advantage of the dividend tax credit for eligible Canadian dividends. The marginal tax rate is much lower than the rate for interest or foreign dividends. You can use our Investment Income Tax Calculator to see how much it can reduce your tax, even if you are a senior and the dividends increase your OAS clawback.
Our registered accounts hold mostly foreign stocks, mainly the ETFs noted above. Our foreign investments used to include more blue-chip stocks and fewer ETFs, but we are now consolidating more into ETFs to keep things simpler and require less research. The registered investments make up just under 50% of our total investments. Of course this is being reduced each year as we withdraw from RRIFs.
We provide information on our average annual return each year, in our Free in 30! article.
TaxTips.ca Resources
Investing - includes tips on choosing a brokerage, how to invest a significant cash amount, etc
Which investments should be held in an RRSP/RRIF, TFSA, or non-registered account?
Which investments should be held inside vs outside the RRSP?
Even Warren Buffet recommends buying index funds!
Tax Tip: Make your money work for you instead of you working for it.
Revised: September 20, 2024