Top Equity ETFs for Indexing Fans

Over the years, my thoughts and strategy regarding investing has matured.  At least I’d like to think so.  It started to change after reading Millionaire Teacher by Andrew Hallam and has been evolving ever since, thanks to other books about index investing using Exchange Traded Funds (ETFs).

If you don’t already know, the statistical evidence is overwhelming; indexing your portfolio will beat the pants off most active money management funds over time. In recent years, I’ve been using more indexed funds myself although I still feel holding a diverse basket of dividend paying stocks remains a good way to invest for passive income. My investment strategy could be best described now as “getting more core” (using ETFs) along with holding my “explore” (using dividend stocks). I intend to index invest almost exclusively in my RRSP going forward.

On that theme, for today’s post, I thought I’d share what I consider some top equity ETFs for indexing fans. Be mindful these are considerations only and not recommendations for your portfolio. Your financial plan may lead you to different products for different reasons in various accounts.

Canadian Equity

  • XIC or VCN or ZCN

Honourable mentions go to:

  • XIU or VCE

*U.S. Equity

  • VTI:US (USD $$) or VUN or VFV or XUS

*International Equity

  • VXUS:US (USD $$) or VDU or XEF

Now if you really want just a two-fund equity solution, pick your Canadian equity ETF above (XIC or VCN or ZCN) and pair it with VXC (an all-world ex-Canada ETF). Former dividend investor and indexing convert Robb Engen recently wrote about his two-fund solution here.

*For U.S.-listed equity ETFs like VTI and VXUS above you should consider owing these products in a U.S.-dollar RRSP.  This is why:

  • U.S.-listed ETFs like these held inside an RRSP escape withholding taxes of 15%.
  • U.S.-listed ETFs like these trade in USD $$ so having a USD $$ RRSP minimizes foreign exchange charges and you can take advantage of currency fluctuations.

There are certainly more equity ETFs to consider but these ones are at the top of my list because of their low money management fees, diversification and the great companies that manage these fund products.

For further reading on indexing and potential products for your indexed portfolio check out Dan Bortolotti’s site Canadian Couch Potato. This is one of my favourite investing sites for many reasons.  Bookmark it along with mine 😉

What are your top equity ETFs?  Do you own any of the ETFs I mentioned above?

57 Responses to "Top Equity ETFs for Indexing Fans"

  1. I have mostly individual stocks, but I also hold some ETFs in different accounts:
    Canadian equities: XIU , XIC. XCS, XMA
    Canadian bonds: CBO and VSC
    US: VTI
    Europe: VEA
    Intern bond: PCY
    High yield bond: HYG
    Canadian REIT : ZRE (also hold individual Can REITs I like)

      1. By similar you probably mean XIU and XIC 🙂 I hold then in different accounts (my RRSP and my wife LIRA) and bought them about 4 years ago when I just stated investing…. Wouldn’t do it now, but just don’t feel like selling XIU and buying XIC or vice versa and pay trading fees

        1. Yes, correct. I don’t think there is an order of magnitude of value selling XIU for XIC either. Yes, XIC has more diversification but returns are basically a wash; even over last 10-years. If anything, XIU is better I think.

  2. I find it interesting how as Canadians most of us put 25% or more of our holdings in the TSX.

    When you read American books on index investing, they only invest in the US index and the world (which admittedly includes Canada.) They never put x% US, y% Canada, Z% the rest of the world.

    Given how small and asset-class-imbalanced the TSX is compared to the NYSE, it’s interesting that we give so much weight to the TSX. I wonder if it’s a holdover from the days when we were limited to 10% foreign in our RRSPs, or if it’s a comfort level with knowing a bit from the news about Canadian companies, or a type of nationalism or what?

    1. I think there are many reasons for the home bias Bet but I think one is retirees who live in Canada and who will retire in Canada can have their portfolio returns in Canadian dollars and not worry about currency exchanges or fluctuations. There is also a familiarity to “buy what you know” to some extent.

      I know when it comes to our investing habits we’re trying to invest more into U.S. and international assets since I recall our Canadian economy is only about 4% of the world economy, maybe less so now with oil in this country taking a hit.

      Thanks for the perspective.

    2. I believe it’s a lack of education and a lack of understanding about currencies. Most people don’t have a US account and might not understand how investing in a US ETF in Canadian dollars would work.

      I have nearly 45% of my dividend portfolio in US and 40% of my Company RRSP in US but I am also very comfortable holding US and doing currency exchange. Most people use the banks to exchange currency and it’s highway robbery …

      1. You raise a good point about folks not being aware about the benefits of USD $$ RRSPs.

        I hope to increase my US component this year. I wish to minimize the currency exchange fees though.

  3. Thanks Mark,
    I have recently switched some my funds from index mutual funds to ETF indexing.
    I have some of the ETF in my portfolio the you listed. I have noticed the ETF you listed has no DRIPs. As a learner, I am not sure if any ETFs out there comes with DRIP feature.
    The ETF I hold are XEF , VUN, VEE and VCN in a nonregistered account.

    1. Most of them/most ETFs you can DRIP Mes. You might be thinking of full DRIPs, with stock transfer agents?

      You just need to call your discount brokerage and tell them you want investments and/or accounts that hold the investments enrolled in a dividend reinvestment plan. They will take everything from there and set that up.

      I’m a big fan of DRIPs, they help take the emotions out of investing and I don’t need to worry about when the right time to buy an investment is.

  4. I’ll always hold dividend stocks but Ive been looking at indexing more lately for a portion of my portfolio. I think the ideal portfolio would always have a link to the market index using a low cost ETF like XIU and it’s nice to see there are lots of options out there. Now if only oil would go back up….

    1. Same Dan. I can’t see myself selling some dividend stocks but never say never 🙂 I will be indexing more going forward and I’m a big fan of XIU, returns over last decade are solid. I figure if the biggest companies in Canada are not making money then nobody is.

  5. Mark,

    Great summary. Was glad to see I hold one of the index funds you mention for each of the equity classes. Only difference is I also include VEE for emerging markets and ZRE for real estate exposure.

    Mr. Captain Cash

  6. Thanks MOA I learn so much from reading your site.

    A couple of questions for you:

    1. If you have XIU already does it make sense to sell and buy say XIC? I see even CCP has changed ETFs from a few years ago in his portfolios that I followed. It seems like every year some ETF you have is no longer the top pick.

    2. I will never feel comfortable buy dividend paying stocks, so I am stuck with ETFs. I know there’s dividend paying ETFs out there. Closer to retirement would be a good time to look at moving money into that type of ETF or wait until you retire or need dividend income?

    1. Thanks warrdogg, I enjoy running the site.

      I think XIU vs. XIC is a personal choice, one that comes down to diversification and costs. As you likely know, XIU tracks biggest 60 companies, XIC holds the broad CDN index. XIU is more expensive, XIC is about as cheap as it can go (0.05%). Personally, it’s not worth sweating the small stuff since either ETF is great in my book although model CPP portfolios may differ.

      You might be happy to know even over a 10-year period XIU outperformed XIC by about 0.2% and that’s after fees are taken into account.

      There are some quality dividend paying ETFs out there. A total return approach is also a good idea in retirement. The latest edition of MoneySense magazine wrote about this. I personally feel total returns are what matters, so if you’re going with dividend ETFs yes I think you get some income from that but the trade-off is less capital appreciation.

      I’m not sure what I’ll do myself as I get older. I’ll probably have a blend: a few low-cost, indexed ETFs for capital appreciation and maybe one or two dividend/income-oriented ETFs as well. The combo might provide about 4% yield and that’s enough for my “safe withdrawal rate”.

  7. Hi,

    Just wondering.. if one invest in one of the ETFs you’ve listed in a RRSP – what happens to the dividends? I have a few ETFs in my TFSA and when the dividends are paid out, I receive the cash and simply re-invest it along with some of my own money to purchase 1 more “share” of an ETF at Questrade.

    To invest in an indexing ETF in a RRSP – they too pay dividends. I don’t want to get taxed from the dividends I receive – so that brings me to my question – what happens to the dividends in a RRSP? Do you receive it in cash? Or does it sit with the ETF provider doing “nothing” until you’ve received enough dividends to purchase another unit of the ETF?


    1. Hi Sean, thanks for reading and your questions.

      If you invest in one of these ETFs or another ETF in your RRSP, you have the option of receiving your distributions from the ETF in cash or should you have enough ETF units to reinvest dividends, you can do that. It’s up to you, you just need to direct your brokerage. Here is more about dividend reinvestment plans:

      Yes, you can invest in an indexed ETF inside your TFSA, RRSP or non-registered account.

      Don’t forget that you won’t “get taxed” from the distributions you receive when you hold those ETFs inside your TFSA or RRSP, as two examples of accounts that offer tax-free investing (TFSA) and tax-deferred investing (RRSP) respectively. Check out my posts on TFSA 101 and RRSP 101 Sean.

  8. VTI and VCE are my core ETF investments that currently hold more than 80% of my net worth. To be honest, I feel they are all I need however I don’t want to miss when individual dividend stocks are on discount because of bad news. One minor disadvantage of holding ETFs is that I cannot capitalize bad news on individual dividend stocks.

    Keep cracking Mark!


    1. Correct BeSmartRich – I figure with some individual stocks and a few ETFs like the ones I mentioned, I’m getting the best of both worlds. Thanks for the support and reading.

  9. Mark,

    If you own VXC in non registered account, then without tax is recoverable for US stocks in the etf as it holds US stocks directly

    Once again, thanks for sharing


    1. Hey Inderpreet, great to hear from you.

      My understanding, although I’m no financial pro, is this: a Canadian ETF that holds U.S.-listed ETFs will have withholding taxes of 15% inside an RRSP or TFSA and you can’t get that back. In a non-registered account the withholding taxes will apply but will be recoverable on your tax return.

      I know withholding taxes are an issue when it comes to investing (I think about it myself) but I also think it’s more important to look at the big picture – which in my mind is – focus on maxing out the RRSP and TFSA first (including VXC potentially) and worry about withholding taxes later after those accounts are maxed out and maybe rebalance from there. Dan Bortolotti’s recent post was brilliant on this subject:

      Thanks for reading and take care!

      1. Mark,

        Thanks for sharing the article. It does make sense to maximize the TFSA and that is our top most priority. I personally don’t like contributing to RRSP but my wife does contribution to RRSP. Then came our non reg account where we follow our investment plan

        Your blog helped us in understanding personal finance in better way and we really want to thank you. Andrew hallam’s Millionare Teacher and Preet Banerjee’s “Stop over thinking your money” has helped along in our journey to retirement. These days I am reading “Intelligent Investor” by Benjamin Graham and its a good reminder of bonds & stock allocation strategy.

        Keep up the good work and we will spread the information as much we can


        1. Inderpreet,

          If you are reading all those books you’ll be an investing pro! You’ll have no problem understanding how to optimize accounts, understand fee structures of products and withholding taxes. As you know I’m a fan of Andrew’s and Preet’s work and happy to promote it on the site.

          Stay in touch and thanks for the kind words.

  10. I just found your blog and reviewed. Interesting work. I am not into indexing as I believe you can get better return with individual stocks. I take it as a game. And with dividend stocks you rarely lose. When the stocks skyrockets, I do not invest, when it falls I start buying it. In the meantime I collect a great dividend income. What better you can get, right?

    1. Hey Martin, just found? 🙂 Kidding aside and welcome. I like dividend stocks as well, I use a hybrid approach, a couple low-cost ETFs and dividend payers for passive income and growth. I also love it when stocks fall in price. I like shopping when things are on sale. Thanks for the comment and hope to see you around more!

      1. So, both should have U.S. stocks/etf’s in them (for withholding tax purposes)..but where you place these stocks in either the CDN or US $ fund RRSP depends on what currency the dividends are distributed?

        Just trying to get a feel for the reasons of why to have both, and when each are best utilized.

        1. Hey Colin,

          There are advantages of having US-listed ETFs (e.g., VTI) since when the CDN dollar falls, the value of the U.S. ETF gets stronger and like you already know, there are no withholding taxes for US-listed ETFs inside your RRSP. So, it makes sense to have US-listed ETFs in a US $$ RRSP account to avoid currency exchange fees.

          If you own CDN-listed ETFs that hold U.S. stocks or ETFs, there will be withholding taxes inside your RRSP – you’ll lose 15%. CDN-listed ETFs will pay distributions in CDN $$ so there is no reason to have a US $$ RRSP if you are only holding CDN-listed ETFs like VUN.

          Hoe that helps?

          1. It helps, thank you.

            If you see this question again, do you think, now that you’ve gained more experience, you would have started your investments with more indexed funds than individual? I read thegreaterfool blog and it seems Garth advocates for indexes (with divs/dist), but you tend towards individual divs with indexes mixed it, but I assuming your portfolio is comprised more of individual stocks.

            I guess it depends how engaged you want to be in administering your portfolio, where monitoring a portfolio with a majority of individual stocks is more time consuming than an indexed portfolio.

          2. Happy to provide insight Colin.

            Based on the returns I’ve had over the last 5+ years, my stock portfolio stacks up well with indexed ETFs. I certainly have many Canadian stocks, so I’ve basically got a mini-index of blue-chip stocks. I don’t own nearly as many U.S. stocks and rely more on VTI.

            I’m actually not as engaged as you may think I am with the portfolio. The stocks I own I don’t intend to sell so I don’t really care too much about the price on any given day, week or month. It’s buy and hold, like indexed ETFs.

            Hard to say what I’d do….if I had to do it again….

            I suppose I would likely invest more in indexed ETFs first, then, if I just couldn’t help myself with some active investing, limit about 20-30% of my portfolio to dividend paying stocks. I’m slowly doing the reverse…more indexing as I get older using ETFs. Much safer; meaning far more diversified this way.

          3. Good info. I’m in my 20’s and I’m weary about making initial mistakes that could put me into a bad position in the long term. Want to do it right. I feel I have another year or two before I start actually making investments though. For now, I’m just reading.

          4. Smart man Colin, keep reading, lots. I’ll have a post likely next week about some great investing books. The summary? Make your plan then you invest in products. The other way around is a) costly and b) frustrating 🙂

            Happy to answer any questions you have.

    1. Not much more to add…from the article… “my investment strategy could be best described now as “getting more core” (using ETFs) along with holding my “explore” (using dividend stocks). I intend to index invest almost exclusively in my RRSP going forward.” No more new individual stocks inside my RRSP.

  11. Helo Mark,

    I think i want to fill up my TFSA with dividend paying stock/sETFs. What would you suggest is a good mix? For example, How many ETFs (and which ones) and how many stocks (and which ones)? Really appreciate your input. Thank you!

    1. Thanks for the comment Sam. I can’t offer any direct advice on my site for many reasons but I think most investors just starting out are wise to read up on indexing and go that route – before they enter the world of dividend paying stocks. There is beauty in simplicity and some ETFs definitely provide that.

      Let me know if you have more questions and potentially I can write a post about it.


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