Posted on May 9, 2019 by Mark | 31 Comments
What are the best ETFs for my RRSP?
Let’s face it…the popularity of Exchange Traded Funds (ETFs) has come a long way in Canada in recent years – which is great news for investors.This could make the decision on what ETFs to buy for your RRSP challenging.
I recall reading an article that mentioned last year alone, some $26-billion (that’s with a “b” folks) flowed into ETFs. Incredible!!
This is evidence that the barriers that used to exist to find and own lower-cost, more diversified, transparent financial products for retail investors like you and me has never been lower.
You can read up on what I consider what makes a great ETF to own here.
Is there a best of the best to own?
In recent years on my site, I’ve posted various articles that highlight what ETFs you might consider for your portfolio. However, these questions from readers below got me thinking a bit more on this subject given their situations.
Mark,
I have some stocks in my portfolio and my wife’s portfolio but I’m tired of paying unnecessary money management fees. Plain and simple – what ETFs are best for my RRSP?
Another reader question…
Hey Mark,
Great stuff on your dividend income – wow. I hope I get there someday! I’m still new to investing so can you help me figure out some of the best ETFs to invest in, in my discount brokerage? I don’t want to worry about the stock market crashing and losing all my money. Just need some funds I can buy and hold and continue adding to over time. Thanks very much!
Thanks for your questions – let’s get into some answers!
Before that, briefly, I want to mention that determining “the best” ETF(s) for your RRSP might be subjective on a very good day. What I mean is, are you looking for supreme tax-efficiency or simplicity? Are you using a dual-currency account (U.S. dollar RRSP and Canadian dollar RRSP) or not? How old are you and what are your plans for assets inside this account – long-term multi-year growth or income or a bit of both?
I can’t answer all those questions for you (nor many more that you should probably consider) but I can give you some insights into what ETFs I would put on my short-list to buy and own and why.
Best ETF option #1 – Consider an all-in-one “GRO” ETF
I wrote about what I believe are some of the best all-in-one ETFs to own in many accounts – RRSP included here. I still feel that way.
Why?
There is beauty in simplicity.
Whether you own a Vanguard all-in-one fund (VGRO), an iShares product (XGRO), or ZGRO (a BMO solution) – these “GRO” solutions offer long-term growth potential for any investor who has a long investing timeline AND do not wish to worry about re-balancing their portfolio between stocks and bonds, nor amongst a number of ETFs.
Buy one and keeping buying it for decades to come. There are however, other options!
Best ETF option #2 – Go with a low-cost U.S-listed ETF
I shared my top, low-cost dividend-oriented ETFs here but there other options worth considering.
Before I list those funds, I want to tell you I’m a fan of using my RRSP for U.S. assets more over time. I state this because I tend to use my TFSA and non-registered account today for strictly Canadian assets (Canadian dividend paying stocks in fact). There is a challenge in focusing on our country for stock investing only: our S&P/TSX composite index is largely 30-40% financials, around 20% energy, and a mix of other sectors although in far lower quantities.
By adding some U.S. ETFs to your portfolio, inside your RRSP, I feel that’s a great way to diversify away from Canadian financials and energy stocks. By owning some diversified, low-cost U.S. ETFs, you will gain some deeper exposure to healthcare and consumer discretionary sectors to name a few (where our beautiful country is however very historically weak).
Beyond the U.S. dividend ETFs I highlighted in that post above, I think any of the following U.S.-listed ETFs could be outstanding choices for your long-term RRSP investing plan (MERs current to the time of this post):
- Vanguard VTI with MER = 0.03%
- iShares ITOT with MER= 0.03%
- iSharesIVV with MER = 0.04%
- Vanguard *VT with MER = 0.09%
While you’ll need to invest in these U.S.-listed ETFs inside the USD $ portion of your RRSP, and therefore, you’ll need to deal with currency conversions to buy the U.S. assets from Canadian-dollar RRSP contributions, you should know U.S.-listed ETFs are probably one of the most tax efficient ways to own equities inside your RRSP.
This is because U.S. ETFs held within your RRSP (or RRIF), your LIRA (or LRIF) escape 15% withholding taxes on distributions paid. (This is not the same tax treatment for U.S. ETFs inside the TFSA (these withholding taxes will apply to U.S. assets inside that account)).
*You’ll notice my asterisk above for Vanguard’s VT fund. While VT is a U.S-listed ETF, it invests in global stocks as well including ~3% of its holdings from Canada. For a puny 0.09% MER, you can own >8,000 global stocks via VT – an incredible bang for your investing buck.
Image courtesy of Vanguard
Best ETF option #3 – Go with a low-cost Canadian ETF
Whether you invest in Canadian ETFs that focus on Canadian content (like VCN, VCE, XIU, XIC, ZCN, ZLB and more)
OR
…you can invest in Canadian ETFs that own U.S and/or international stocks (like VFV, XUU, VUN, XAW, VXC and others) – this approach is absolutely one to consider.
(I happen to own XAW from this list.)
Again, you’ll find some of my favourite low-cost Canadian ETFs on this standing page here.
The best part about owing low-cost Canadian ETFs that mimic the big U.S. listed ETFs (XUU, VFV, VUN are good examples) is you don’t have to worry about U.S. to Canadian dollar currency conversions.
What, no bond ETFs Mark?
Correct.
You’ll see above I did not include any bond ETFs whatsoever as part of my “best-of” RRSP ETF choices.
It’s not that I don’t think bond ETFs don’t have a place in some investor portfolios – on the contrary – bonds are an excellent portfolio parachute when stock markets tank. In fact, the “GRO” ETF options include some bonds.
Rather, historically speaking, if your investing horizon is measured in decades – be reminded bonds unto themselves do not generate nearly the same long-term returns as stocks have generated over many years of investing.
For that major reason, I think the tax-deferred RRSP is absolutely a great place to own mostly equities/stocks.
Learn to live with stocks.
You can always consider owning fixed income, including bond ETFs, in far higher percentages across your portfolio as you age. This way, nearing retirement age(s), you can focus on more capital preservation and/or income protection using bonds.
Summary
There are dozens of ETFs I could have listed above. There are also dozens of factors why some ETFs in this list, could be right for you. I’ll leave that decision to you!
Regardless of what you decide, I hope I have provided some rationales for different ways you can invest in some great low-cost ETFs for your RRSP, and be wealthier for it!
Readers and experienced investors: what ETFs do you own in your RRSP? Why? Share away in a comment.
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
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William Rose October 20, 2021 at 10:34 pm · Edit
Hi Mark – I had an epiphany the other day; I’ve been doing our TFSA investing wrong. We’re in the very fortunate position of having sufficient resources to NEVER withdraw from our TFSA – other than in some crazy extreme situation – so our Planner has structured our estate planning to consume taxable and tax-sheltered investments over our lifetimes, while maximizing our TFSA contributions til we die. The result is that when we’re finally dead, our TFSAs are planned to be the bulk of our estate (and net worth) and be tax-free to our beneficiaries.
My brain wave was realizing that my default approach of balancing for income and growth and shifting toward income as we get older is wrong. We’re LONG TERM investors in our TFSAs – after all, we have nothing to lose and so much to win by investing for growth now! If I could only figure which stocks are going to power the low-carbon economy over the next 25-30 years…more seriously, that is in fact a question that a reasonable and smart investor can answer, right? This is my goal for the next year – deciding the specific growth strategies for our TFSAs. Railways, batteries, technology, robotics, fuel cells, etc, etc.
You’re a deep financial thinker – I’d be interested in your take on this TFSA epiphany.
Love your work – thanks for helping us plebes be smarter about our investing and finances.Reply
Mark October 20, 2021 at 11:01 pm · Edit
William, that makes total sense to me – your draw down order. I’ve been writing more about that on my site. Check that out:
https://www.myownadvisor.ca/weekend-reading-portfolio-drawdown-options/So, ideally, well-to-do investors should consider primarily the following draw down order for estate planning purposes:
1. NRT (N = Non-reg) then (R = RRSP/RRIF) then (T = TFSAs) “until the end” OR
2. RNT.Now, growth vs income.
See AlsoBest Dividend ETFs to Buy NowAre ETFs more tax efficient than mutual funds in Canada?Seit 100 Jahren eine DividendeRay Dalio All Weather Portfolio Review, ETFs, & Leverage (2024)🙂
The challenge is, it’s hard to know what will be “great” in another 25-30 years. This is why indexing can work for many: you don’t have to guess what the hot sector in 2050 might be. You own it all!
If I had to guess William, it’s technology overall. So, owning a global ETF inside your TFSA (like XAW) or maybe owning a tech-oriented ETF like ZQQ from BMO could be the ticket per se to wealth.
I’m not sure you’re doing it wrong, income investing can generate tremendous returns over time (and income) but if you want growth, income stocks can’t always do it all.
You might also want to read this post about beneficaries – very important stuff!
https://www.myownadvisor.ca/beneficiaries-for-tfsas-rrsps-rrifs-and-other-key-accounts/Great thinking on your part.
Cheers,
MarkReply
Malcolm January 4, 2021 at 11:04 am · Edit
Hi Mark,
You like investing in ETF’s, especially as a way of gaining some exposure to the USA market. Which of these specific ETF’s would you suggest for one’s RRIF vs TFSA, because of the USA withholding tax implications?Thank you for your insight.
Malcolm
Reply
Mark January 4, 2021 at 1:44 pm · Edit
I do Malcolm and will buy some XAW inside my TFSA for that reason in 2021.
For RRIFs, I think it can make great sense to own U.S. listed ETFs like IVV, VTI, etc. since there are no U.S. withholding taxes on U.S. listed ETFs inside the RRSP or LIRA or RRIF.I personally intend to own more U.S. listed ETFs in my RRSP with time.
MarkReply
karl March 17, 2020 at 1:31 am · Edit
hi,
i have rrsp, tfsa and non-registered money to invest. must i buy 3 all-in-one ETFs? or can they be put into a single all-in-one?
thx, and stay safe out there!Reply
Mark March 17, 2020 at 7:34 am · Edit
Hey Karl,
Some investors I know (this is not advice), buy just one or two funds for all three accounts. E.g., TFSA and RRSP they buy VGRO, XGRO or VEQT.
For their non-registered account they buy some tax efficient ETFs for the CDN market like XIU.
Happy investing and stay safe!
MarkReply
David Kerins January 15, 2020 at 2:10 pm · Edit
One thing I learned today was that my brokerage (Virtual Brokers) charges $15 per quarter to open and maintain a USD “side” to my RSP account. That is a bummer as it really eats into the dividends. Do other brokerages have such ongoing fees for the USD side of an RSP account?
Reply
Mark January 15, 2020 at 10:42 pm · Edit
Huumm, I didn’t know that David…re: $15 charge.
I know over the years some brokerages have dropped their account minimums for any TFSA, RRSP, taxable accounts, other. I don’t think BMO has very high account minimums? Full disclosure – I have a partnership with them. Thoughts on giving them a call and asking them? The phone call is free and there is no obligation of course….do what is best for you!
https://www.myownadvisor.ca/deals/Let me know what they tell you. I can also send you a link for Questrade as well…again, no obligation.
Reply
Lloyd May 9, 2019 at 7:05 pm · Edit
Off topic but SLF and T increased dividends.
Reply
May May 9, 2019 at 8:08 pm · Edit
AQN also increased dividend, 9.98%. A very nice day for me.
Reply
Lloyd May 9, 2019 at 8:15 pm · Edit
I just saw that too May. Woot!
Reply
Mark May 10, 2019 at 5:48 am · Edit
See AlsoDGRO: Sleep Well With This ETFGreat 🙂 Own AQN and T and SLF!! All DRIPping away nicely.
Reply
AR May 9, 2019 at 5:59 pm · Edit
Hi Mark, Thank you for your website. I’m learning a lot from it. A question on currency exchange – I’m wondering if you and your readers buy US ETFs/stocks even when the US dollar is strong and expensive. Or do you try and buy US ETFs/stock when the Canadian dollar is stronger? I’m a new investor and want to make some US ETFs/stock purchases but am finding it hard to pull the trigger as the US dollar is so strong. Thanks for your input.
Reply
Mark May 10, 2019 at 5:55 am · Edit
Most welcome AR. I enjoy running it 🙂
I can’t speak for all readers but I can appreciate the challenge – including right now. CDN $$ is terrible vs. USD $$. Ideally, yes, it would be nice to see our CDN $$ closer to par but it is, what it is. Given my investing time horizon has been in the decades, and I hope it will be in the decades to come, I typically bite the bullet and buy some USD assets when I need to increase by USD % across my portfolio.
I can’t control currency exchanges but I do want to keep my allocations in line with my personal targets.
An alternative of course is to own CDN-listed ETFs that own U.S. stocks (thinking a good example is VUN). You could buy that, hold it, contribute to it, etc. over time and when the USD $$ comes back – sell that and buy U.S.-listed ETFs (VTI). Pros and cons everywhere for sure.
I hope that provides some insight at least.
MarkReply
While it is painful to exchange CAD to USD right now it is important to remember that trying to time foreign exchange rates is just as difficult as ETF prices. Stick to a schedule and allocation you are comfortable and don’t fall into the trap of thinking you can predict the market.
Reply
The Economist May 9, 2019 at 2:42 pm · Edit
Hi Mark,
I noticed you said “…you’ll need to deal with currency conversions to buy the U.S. assets from Canadian-dollar RRSP contributions”.
Is there any way to make RRSP contributions with USD you hold in another account?
Reply
Mark May 9, 2019 at 3:53 pm · Edit
Well, certainly you could have a different approach…re: Gambit.
Google “Norbert’s Gambit”. Basically a form of currency arbitrage.
The way I do it/have done it:
Step 1. Find an inter-listed CDN stock that trades on CDN TSX and USD Dow Jones/NYSE. Many examples but RY, TD, BIP.UN, etc. come to mind – they all trade on the NYSE. Even some of these pay dividends in USD $$ already.
https://www.myownadvisor.ca/get-u-s-dollars-from-canadian-dividend-paying-stocks/Step 2. Buy CDN stock inside CDN-side RRSP and “journal it” over from CDN-$$ side to USD-$$ side after the transaction settles. (So, buying 1 share of BIP.UN on CDN-side can be “journalled” to USD-side as BIP. Trade settles in usually 3 business days.)
Step 3. Sell units of BIP or other on USD-side for your U.S. ETFs purchases as you wish.
I’m not aware that you cannot make direct RRSP contributions in USD (potentially many brokagers will allow this), rather, my context for this statement was because my income is in CDN $$ and because I make money in CDN dollars then most of my direct RRSP contributions are also in CDN $$. I hope that makes more sense?
Cheers,
MarkReply
Adhithya January 17, 2021 at 11:21 pm · Edit
Hi Mark,
My name is Adi and I have recently starting to research more about ETFs.
I’m looking at holding ETF’s in my RRSP and TFSA accounts and looking at a long term (“buy and hold”) strategy to save for my retirement. Specifically, I’m interested in CAD listed ETF’s which invest in US stocks-specifically-VFV, VUN, XUU. I was hoping to clarify some questions around taxation
1. I know you mentioned that if we invest in CAD listed ETF’s investing in US stocks, then we are subjected to witholding taxes. I’m planning to go with a DRIP for the above ETF’s I mentioned. In this case, will I still be paying witholding taxes if I choose DRIP
2. If I were to buy the US listed ETF’s, I would be getting fewer units given that CAD currency has a lower value than US $ and the NAV of the US ETF’s is higher–> So, would this be a good strategy to hold fewer units of a US listed ETF than owning more units of a CAD equivalent like VFV?
3. Let’s say, I retire 30 years from now and I’m looking to sell my CAD listed ETFs (e.g. VFV)–> In this scenario, will I be paying tax on the US side. I’m really concerned about this as paying US taxes on a huge amount like this will dent by retirement savings.
Thank you for your helpReply
Mark January 18, 2021 at 2:01 pm · Edit
Hi Adi and welcome to the site! I hope you follow along often 🙂
1. I think you’re smart to go with any buy and hold approach. I’ve been an owner of low-cost ETFs for many years for that reason.
2. CDN ETFs that own U.S. stocks are subject to 15% withholding tax inside TFSA and RRSP. No way around that. It will occur with or without your DRIP.
3. If you decide to DRIP, in a brokerage account, you’ll likely need ETF distributions to be worth more than 1 whole ETF price for your ETF to DRIP.Check out some details on this page:
https://www.myownadvisor.ca/drips/The biggest advantage to U.S.-listed ETFs (IVV, VTI, VOO) is you get the ride the currency wave and avoid withholding taxes inside RRSP.
Is this the end of the world if not done? Heck no 🙂
Don’t be overly concerned with any U.S. withholding taxes. You don’t “pay it” per se in retirement since you never see that income in the first place, it is withheld by the U.S. IRS.
The RRSP is a tax-deferred account. You will always pay some taxes to get money out of the RRSP. It’s designed that way on purpose!
All the best and thanks for being a fan.
MarkReply
RBull May 9, 2019 at 7:02 pm · Edit
Hi The Economist,
Re your question on RRSP USD contributions:
I have no experience on contributing this way but do have experience withdrawing in USD. I imagine it works the same way. I place my order to transfer (withdraw) funds at broker RBCDI (from rrsp usd side to usd savings acct) I’m shown the gross/net Usd amounts and equivalent in cdn funds for cdn tax purposes. I understand this is done using current fx spot rates. Done.
I have also done numerous Norbert gambits both ways, mostly fairly large transactions.
Good luck.
I suggest you check procedure at your broker.Reply
Mark May 10, 2019 at 5:49 am · Edit
Thanks for sharing that experience with USD withdrawals.
Reply
Alin May 10, 2019 at 9:56 am · Edit
Hi The Economist,
I make RRSP contributions with USD from my CIBC US$ Personal Account account to my USD RRSP account with Qtrade. I write a USD cheque to Qtrade, where I specify the account number where the money will go (USD RRSP), and mail it to them.
More information about the CIBC USD account:
– There’s no monthly fee.
– There’s a cost of $0.75 U.S./transaction – this is how much it costs to write a cheque to Qtrade.
– It doesn’t cost anything when you deposit cash.
– You can use the CIBC ABMs to make deposits – they accept USD bills.
– You can request 100 cheques from CIBC (not less) and it costs more than $50 CAD – I don’t know the exact cost. I got the cheques for free when I opened the account 🙂
– A few years ago, when I opened the account, RBC had a similar account. I don’t remember why I went with CIBC…Reply
Mark May 11, 2019 at 7:38 am · Edit
Thanks for your sharing your personal experiences Alin!
Reply
Simran May 9, 2019 at 12:36 pm · Edit
Is there any benefit of owning both option 1 and option 2 for young investors? If yes, what should be the ratio?
Currently, I’m all into xaw, vcn, zag (90% stock) in my Tfsa. I’m 27.Reply
Mark May 9, 2019 at 12:44 pm · Edit
I could see a mix of CDN ETFs (like those you mentioned) in your RRSP working out very, very well long term. Well done.
Reply
