ETFs to generate retirement income

ETFs to generate retirement income

I’ve written on this site many times that you need to consider what you spend to figure out your “enough” number for retirement. But how to generate retirement income and/or what to invest in to generate meaningful retirement income remains yet another legitimate stock market question to answer.

For today’s post, I thought I would highlight how you might wish to structure your income portfolio – what ETFs you could consider owning to generate retirement income.

ETFs to generate retirement income

Image credit: Dreamstime.com

Let’s dive in!

My retirement income plan and options

I’ve been thinking about my semi-retirement income plan for some time now.

Months ago, I captured a list of overlooked retirement income planning considerations that remain very relevant.

There are obvious ways to generate retirement income but I suspect some might not appeal to you for a few reasons!

  • Option #1 – Save more. Sigh. I doubt most people will like this option, I don’t! However, more money saved will help combat inflationary pressure, rising healthcare costs and longevity risk. 
  • Option #2 – Work longer. Double sigh. If you didn’t like option #1, you might not like this one! Working longer into your 60s or potentially to your 70s might be the reality for some with a low savings rate. 
  • Option #3 – Spend less. Spending less than you make seems simple but not easy!

Simple but not Easy

Meaning, the path to a well-funded retirement is usually (always?) spending less than you make, investing the difference, and growing that gap over time. This has largely been our plan – to let the power of compounding do it’s thing – but that does take discipline and time. Investing patience is a virtue. 

Save, invest, earn

Our semi-retirement income plan has us leveraging a mix of income streams in a few years:

  1. Earn income from part-time work – to remain mentally engaged but also to fund some income needs and wants in our 50s. 
  2. Spend taxable (but tax-efficient) dividend income from our basket of Canadian stocks.
  3. Make strategic Registered Retirement Savings Plans (RRSPs) withdrawals in our 50s and 60s. 

We’re not quite “there” yet in terms of having 1, 2 and 3 running smoothly to meet our semi-retirement income needs yet, but we are getting there and making some lifestyle choices accordingly…

We hope to semi-retire sometime in 2024.

We have been working hard to build up our taxable dividend income stream for about 15 years now.

We continue to max out our TFSAs as our first investing priority every January (and we’re saving for that again in early 2023).

We have been maxing out contributions to our RRSPs, and we’ll continue to do so for the next couple of years.

What are my retirement income needs? 

In a nutshell, we figure once we can earn close to $30,000 per year from a few key accounts (for example, from our taxable account(s) and TFSAs x2), and then make those strategic RRSP withdrawals on top of that, we should have enough to start part-time work.

Here are some estimated very basic expenses in semi-retirement:

Key expensesMonthlyAnnuallySemi-retirement comments ~ end of 2024??
Mortgage$2,240$26,880We anticipate the mortgage “dead” before the end of 2024.
Groceries/food$800$9,600Although can vary month-to-month!
Dining/takeout$100$1,200 
Home maintenance/expenses$700$8,400Represents 1% home value per year, increasing by inflation.
Home property taxes$500$6,000Ottawa is not cheap, increasing by inflation or more.
Home utilities + internet/TV/cell phones, subscriptions, etc.$400$4,800 
Transportation – x1 car (gas, maintenance, licensing)$150$1,800May or may not own a car long-term!
Insurance, including term life$250$3,000Term life ends in 2030, will self-insure after that without life insurance.
Totals with Mortgage$5,140$61,680 
Totals without Mortgage$2,900$34,800As you can see, once the debt is gone, we’ll be in a much better place for financial independence!

Add in other spending/miscellaneous spending to the tune of $1,000 per month on top of that, and our semi-retirement budget is likely at the basic-level about $4,000-$4,500 per month.

What are your retirement income needs?

Until the end of time, I suspect one of the most popular retirement planning questions will be: how can I generate retirement income?

That’s a HUGE quesiton to answer. I mean, we have rising inflation, higher interest rates, and the need to make your money last to fight any longevity risk, higher taxation and the need to cover essential healthcare costs as you age. This also makes how you can generate retirement income a VERY important question answer. 

Passionate readers of this site will know I’m a big fan of investments that generate meaningful income. Sure, you can invest in real estate, private equity, run a business into your 60s and 70s but for many people – the stock market is a common vehicle for average people/average investors to be long-term business owners.

This makes the hope of capital gains or getting paid today via dividends an interesting paradox.

As I get older, while the best total returns are always the goal, I’m more concerned about the tangible income my portfolio can (and will) generate moreso than hoping for stock market prices to work in my favour.

Full stop: I like investments that generate income. I like individual stocks as investments that pay ever growing income!

While I believe in (and own) low-cost, passive Exchange Traded Funds (ETFs) for total portfolio growth, a major portion of my portfolio rewards me to be a shareholder. I am attracted to investments that pay dividends or distributions. You may wish to consider the same for your meaningful retirement income needs.

Should you use ETFs to generate your retirement income needs? 

I believe so, at least a consideration if you’re not going to be an owner of some individual dividend paying stocks!

While I invest in many Canadian and U.S. individual dividend paying stocks for income and growing income, today’s post is about those lower-cost income-oriented ETFs you can own in certain accounts to avoid individual stock risks.

Some readers are wary of individual stocks. This post is for them.

While not all ETFs are created equal (far from it!), there are a couple of key advantages to owning income ETFs to generate your retirement income vs. individual stocks. 

  1. An ETF is a pooled investment – ETF units are bought and sold on a stock exchange – it can include a nice mix of stocks, bonds, commodities or a mixture of these. You can avoid individual stock selection or individual company bias by owning a basket of stocks. 
  2. An ETF can help you avoid portfolio turnover or churn; lower churn can lower your transaction costs and potentially increase your overall returns since you are not dabbling in and out of ETF products continually.
  3. An ETF can offer diversification right out of the box – American economist and Nobel Prize winner Harry Markowitz was quoted in saying: “Diversification is known as the only free lunch in investing.” This means investors can reduce their risk by spreading their investments across different asset classes, like stocks and bonds, but also across geographic regions. This is an essential concept as part of long-term investing success because we don’t know which investments in what countries will perform well in the future, including decades from now. So, holding a variety of assets across different countries can help boost returns while decreasing risk.

With more than 1,100 ETFs now available in Canada, I believe its very easy to succumb to some paralysis by analysis but there are some ETFs that make strong considerations to own to generate your retirement income.

ETFs to generate retirement income

Before I share some of my favourite ETFs, and why, remember that personal finance and investing will always be personal.

For example, some folks wish to pay down their mortgage before investing.

I provided my thoughts on that here.

The definitive answer to paying down your mortgage or investing

Based on what works for us, I’ll share list of rules or guidelines we follow to help build some of our growing retirement income:

  1. To repeat, we max out contributions to our TFSAs, first, every year, and then invest in our RRSPs after that. We invest in taxable accounts only after TFSAs and RRSPs are contributed to. This is because I have a bias to earning and growing tax-free income (TFSAs) first, then growing tax-deferred income (RRSPs), before earning taxable dividend income.
  2. We own only equities in our personal portfolio. While you can generate some retirement income with bonds, I have little use for bonds these days. I like owning some cash instead to manage market volatility. 
  3. I like and we own ETFs for extra diversification beyond the individual stocks I/we own. Meaning, I anticipate most of our dividend income will come from our dividend stock portfolio but just in case, I own thousands of stocks from around the world via a few ETFs that invest in stocks beyond Canada and the U.S. 
  4. We tend to buy and hold only dividend paying stocks for income stability and income growth. We typically own companies that raise their dividends every year. We also own companies that tend to Beat the TSX. If you are not comfortable with owning individual stocks, no problem, then my list of ETFs for generating retirement income was produced today for you to consider!

Here are some ETFs to consider in key accounts:

TFSA Assets (examples)

RRSP Assets (examples)

Taxable Assets (examples)

Canadian Real Estate Investment Trusts (ZRE, XRE, others)
Canadian-listed dividend ETFs (XIU, XEI, ZDV, VDY, others)
 
Canadian Real Estate Investment Trusts (ZRE, XRE, others)
Canadian-listed dividend ETFs (XIU, XEI, ZDV, VDY, others)
U.S.–listed dividend ETFs (VYM, VIG, DGRO, others)
Canadian-listed dividend ETFs (XIU, XEI, ZDV, VDY, others)

Why these specific ETFs to generate retirement income?

You’ll see beyond a few REIT ETFs, I have selected a slight bias to dividend ETFs, both from Canada and the U.S. – to deliver meaningful income.

Overall, dividend ETFs from North America may be considered for risk-averse investors who are looking for income from their portfolio – ETFs that hold established companies. Dividend ETFs may be appealing to many retirement-aged investors since you don’t have to deal with any stock selection. Many well-constructed dividend ETFs will save you the time and effort you might otherwise spend on researching individual stocks, figuring out where value may lie, etc. The packaged ETF has done all the work for you.

These are some of my *favourite Canadian-listed dividend ETFs for Canadian stocks:

  1. iShares S&P/TSX 60 Index ETF (XIU)
  2. iShares S&P/TSX Composite High Dividend Index ETF (XEI)
  3. BMO Canada Dividend ETF (ZDV)
  4. Vanguard Canada FTSE Canadian High Dividend Yield Index ETF (VDY)

*There are others to consider as well.

XIU is probably my favourite.

XIU is the oldest Canadian Dividend ETF with an inception date in 1999. I’ve always liked XIU given it has a very low MER (0.18%), it has 60 blue-chip holdings (companies that always seem to make lots of money!), and this fund is very tax-efficient for your taxable account. I recall all XIU distributions paid have historically been eligible for the Canadian Dividend Tax Credit – covered here.

This is why XIU (along with some other Canadian-listed funds) are in my taxable column in the table above. 

These are some of my favourite U.S.-listed dividend ETFs: 

  1. Vanguard High Dividend Yield ETF (VYM)
  2. Vanguard Dividend Appreciation ETF (VIG)
  3. iShares Core Dividend Growth ETF (DGRO)
  4. iShares Core High Dividend ETF (HDV)
  5. Schwab U.S Dividend Equity ETF (SCHD)
  6. State Street SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
  7. ProShares S&P 500 Dividend Aristocrats ETF (NOBL)

I would have a bias to owning any U.S.-listed ETFs inside my RRSP or LIRA. This way, I avoid foreign withholding taxes. 

What about Canadian-listed dividend ETFs that hold U.S. stocks or ETFs?

Well, should you wish to avoid any Canadian dollar to U.S. dollar currency conversions work with Norbert’s Gambit, here are some great considerations to own:

  1. iShares US Dividend Growers Index ETF (CAD-Hedged) (CUD)
  2. Vanguard U.S. Dividend Appreciation Index ETF (CAD-Hedged) (VGH)
  3. BMO US Dividend ETF (ZDY)

What about international ETFs to generate retirement income?

I think international markets are best owned via growth ETFs vs. dividend ETFs due to mainly the lower cost structure involved. 

These are my top-3 favourite international ETFs to own:

  1. iShares Core MSCI All Country World ex-Canada Index ETF (XAW). XAW covers the global stock market outside Canada all in a single ETF. (I own it.) With almost 10,000 positions, it includes the entire US market (~60%), developed international markets (~27%), and a smaller portion of emerging markets (~12%).  If you have a significant amount of Canadian exposure and want some diversification, XAW is a one-stop-shop!   
  2. Vanguard FTSE Global All Cap ex-Canada Index ETF (VXC). VXC is Vanguard’s version of XAW that covers the global stock market outside Canada (ex-Canada).
  3. iShares Core MSCI EAFE IMI Index ETF (XEF). If you already have Canadian and U.S. exposure, then you may want some developed international market exposure owning the largest companies outside Canada and the U.S. 

What about some longevity funds?

Meh. Not sold on them.

Have a review of this post here to review some pros and cons for the Purpose Investments Longevity Pension Fund.

VRIF is another popular and newish product but I wouldn’t own that either.

Covered call ETFs? Well, I don’t think they deliver as much long-term value as some investors believe they might.

ETFs to generate retirement income summary

As always with investing, it depends. 

Your approach to generating retirement income might come from real estate, private equity, the stock market, or another investing interest. All good!

Should you choose to invest in the stock market to generate some retirement income, then my list of income ETFs should assist.

Furthermore on your retirement income planning journey: the same principles for asset accumulation might also apply in asset decumulation:

  1. Keep your money management fees, low.
  2. Avoid trading/swapping funds.
  3. Take advantage of our Canadian dividend tax credit when you invest in taxable accounts.
  4. Consider owning investments beyond Canada for diversification.

I know many retirees that own a blend of individual stocks, growth ETFs, dividend ETFs and other assets to help fund their retirement income needs. The same can apply to you too.

If you have a favourite dividend income or income-oriented ETF, let me know about it. I will be happy to review it, have a look, and offer a personal take. 

Thanks for reading. 

Related Reading:

How much do you need to retire on $5,000 per month with 3% sustained inflation?

This couple wants to retire at age 52. How much do they need?

Can you retire on a lower income?

Mike and Julie want to spend $50,000 per year in retirement starting in their 50s…how much do they need?

Mark

Footnotes:

Following publication of this post, a passionate reader (Bernie) wanted to highlight that while ETFs can be great for some, considerable (and growing) income can be delivered via direct ownership in dividend growth stocks.

Bernie:

“I’ve been retired for over 11 years. My dividend income is my largest income stream so I prefer my dividends to be consistent, reliable and growing to keep up with inflation. I have no problem achieving this with my dividend growth stocks. You don’t get that with ETFs, especially Canadian ETFs. ETF distributions tend to be lumpy and irregular in their payment amounts and direction (up or down). Their varying payments makes it a dogs breakfast trying to fit them into one’s budget. Have a look below at the comparative annualized dividend growth tables I put together. As one would say, the proof is in the pudding!”

Thanks to Bernie for this table below – see comments – here is Bernie’s “proof is in the pudding” related to owning some Canadian dividend all-star stocks and U.S. dividend champions. 

My friend Michael maintains the Canadian dividend all-star list here.

You can find a list of U.S. dividend champions here.

 

ETF3-Yr DGR5-Yr DGR
1. iShares S&P/TSX 60 Index ETF (XIU)5.212.11
2. iShares S&P/TSX Composite High Dividend Index ETF (XEI)-0.841.77
3. BMO Canada Dividend ETF (ZDV)-1.091.15
4. Vanguard Canada FTSE Cdn High Div Yield Index ETF (VDY)4.628.54
AVG1.983.39
Cdn Dividend All-Star List (Average of 92)9.9611.01
ETF3-Yr DGR5-Yr DGR
1. Vanguard High Dividend Yield ETF (VYM)6.106.84
2. Vanguard Dividend Appreciation ETF (VIG)11.708.53
3. iShares Core Dividend Growth ETF (DGRO)6.339.36
4. iShares Core High Dividend ETF (HDV)1.242.84
5. Schwab U.S Dividend Equity ETF (SCHD)16.3213.45
6. State Street SPDR Portfolio S&P 500 High Div ETF (SPYD)-1.730.71
7. ProShares S&P 500 Dividend Aristocrats ETF (NOBL)8.7810.39
8. SPDR S&P 500 ETF (SPY)3.575.45
AVG6.547.20
US Dividend Champions List (Average of 724)10.5611.16

 

Thanks for reading,

Mark

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and now investing beyond the 7-figure portfolio to start semi-retirement with. 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.

26 Responses to "ETFs to generate retirement income"

    1. Zasid,
      I’m not an index investor but thought I’d check this one out anyway. SITU has underperformed its peers VSV, XUS & ZSP by at least 2.6% in TR over the 20 months since its inception in early Nov 2020.

      Reply
      1. Thanks, Bernie. 🙂

        Certainly a challenge with any new funds, very short history and hard to compare with others. Once 10-year and 20-year marks hit, if the funds last that long (!), it’s a much better to compare funds but by then performance is 20/20 of course!

        Reply
  1. Hi Mark, I read all your articles and find they very informative and helpful. I am looking to build diversified investments in a non-registered account. You have written lots about RRSPs and TFSAs. I understand the tax dis-advantages of buying outside Canada and have fully invested my RIFs and LIFs with a pension approach, broad based and global. Do you have some opinions on the mix of stocks, asset classes that are best for non-registered accounts. I currently have a number of dividend paying wide moat Canadian stocks and am looking to make some purchases with the market down. Thanks.

    Reply
    1. Love the readership, Nancy – thanks 🙂

      You know, I don’t mind buying outside of Canada in a taxable account at all. I just believe the Canadian dividend tax credit is handy for that – taxable investing.
      https://www.myownadvisor.ca/tax-treatment-canadian-dividend-paying-stocks/

      I find it easy to understand and this way, I can be tax-efficient.

      I think if I did not invest in individual Canadian stocks, in a taxable account, I would likely go with XIU ETF (Canadian stocks) or an all-in-one equity ETF like XEQT, VEQT or HGRO.

      HGRO in particular is rather tax efficient.
      https://horizonsetfs.com/ETF/hgro/

      I find the BTSX (Beat the TSX) screen good for “dividend paying wide moat Canadian stocks” to make a purchae with. That’s my bias for taxable investing for income and growth. I own international assets in my TFSA and RRSP.

      Thoughts?

      Cheers,
      Mark

      Reply
  2. Hi Mark,

    Thanks for your post, I follow your weekly posts and love all of the info you provide!

    Our TFSA and RRSP is maxed out and we have a substantial amount of investments in our cash account. I mainly have dividend-growth stocks in our TFSAs and cash account.

    My question is, if my goal is to live off of dividend income in ten years, when we retire at age 58, should I be investing in growth only stocks/ETFs in my RRSP until then to grow equity, with the intention of selling those later on and buying dividend ETFs in 10 years? I guess the real question is, will I be able to withdraw dividend income from my RRSP in 10 years while leaving the capital there? Should I focus on growth or dividends in my RRSP knowing my intention is to live solely off of Dividends in 10 years time?

    Thanks,
    Kristine

    Reply
    1. Always great to hear from readers, Kristine!

      Congrats on your TFSA and then RRSP maxed out, very smart 🙂

      “My question is, if my goal is to live off of dividend income in ten years, when we retire at age 58, should I be investing in growth only stocks/ETFs in my RRSP until then to grow equity, with the intention of selling those later on and buying dividend ETFs in 10 years?”

      I can speak for myself – ha.

      I own CDN and U.S. stocks in my RRSP, CDN stocks in my taxable. I will likely “live off dividends” for a bit from my taxable, making some sells along the way, and slowly wind down the RRSP assets in our 50s and 60s. I’ll leave TFSAs “until the end”.

      So, for us, a mix of slow RRSP withdrawals over many years, including letting the dividends accumulate in cash and then withdrawing that cash is our plan. I will slowly sell off stocks and ETFs inside the RRSP to withdraw money from RRSP.

      The question about growth or dividends is very interesting because ideally you want both! The challenge, I find, I have no idea when growth will happen so I own a bit/mix of dividend growth stocks for income (and growth) and a few low-cost ETFs for the growth if and when that happens.

      Thoughts? 🙂
      Happy to chat more about this since I’m often thinking about asset decumulation myself!

      Here is another article:
      https://www.myownadvisor.ca/how-and-when-to-withdraw-from-rrsp-and-tfsa/

      Mark

      Reply
  3. Good article Mark.
    I’ve been retired for over 11 years. My dividend income is my largest income stream so I prefer my dividends to be consistent, reliable and growing to keep up with inflation. I have no problem achieving this with my dividend growth stocks. You don’t get that with ETFs, especially Canadian ETFs. ETF distributions tend to be lumpy and irregular in their payment amounts and direction (up or down). Their varying payments makes it a dogs breakfast trying to fit them into one’s budget. Have a look below at the comparative annualized dividend growth tables I put together. As one would say, the proof is in the pudding!
    ETF 3-Yr DGR 5-Yr DGR
    1. iShares S&P/TSX 60 Index ETF (XIU) 5.21 2.11
    2. iShares S&P/TSX Composite High Dividend Index ETF (XEI) -0.84 1.77
    3. BMO Canada Dividend ETF (ZDV) -1.09 1.15
    4. Vanguard Canada FTSE Cdn High Div Yield Index ETF (VDY) 4.62 8.54
    AVG 1.98 3.39

    Cdn Dividend All-Star List (Average of 92) 9.96 11.01

    ETF 3-Yr DGR 5-Yr DGR
    1. Vanguard High Dividend Yield ETF (VYM) 6.10 6.84
    2. Vanguard Dividend Appreciation ETF (VIG) 11.70 8.53
    3. iShares Core Dividend Growth ETF (DGRO) 6.33 9.36
    4. iShares Core High Dividend ETF (HDV) 1.24 2.84
    5. Schwab U.S Dividend Equity ETF (SCHD) 16.32 13.45
    6. State Street SPDR Portfolio S&P 500 High Div ETF (SPYD) -1.73 0.71
    7. ProShares S&P 500 Dividend Aristocrats ETF (NOBL) 8.78 10.39
    8. SPDR S&P 500 ETF (SPY) 3.57 5.45
    AVG 6.54 7.20

    US Dividend Champions List (Average of 724) 10.56 11.16

    Argh, the cut and paste of my nicely formatted table doesn’t lineup properly. Mark, I’m emailing you the table. Could you please get it to lineup properly and include it in your comment.

    Reply
    1. Bernie, awesome points and updated my post for your table!

      Yes, I mean, I disclose that I own (and make no apologies on my site for it…) many CDN dividend all-stars and a few U.S. dividend champions – for the very reason you have highlighted: ever growing dividend income and the stability of gettting paid to be a shareholder 🙂

      Therefore, no lumpy distributions to worry about or changes the fund money manager might make.

      That said, some of these dividend ETFs will deliver meaningful income AND growth for many retirees that they desparately seek – but by no means are dividend ETFs perfect. There are always trade-offs with any investment.

      Thanks for your kind addition to my post.
      Mark

      Reply
        1. All good, I think things are pretty clear and compelling – why I continue to invest in CDN dividend all-stars and BTSX stocks, along with a few U.S. dividend champs like JNJ, PG and others. 🙂

          Appreciated!
          Mark

          Reply
  4. Hey Mark

    A while back, I did an evaluation of VDY vs individual stocks for the non-reg account we have for our grandkids. For total returns, VDY outperformed the stocks my wife & I own over 1, 3, and 5 years by 8.37%, 4.52%, and 1.61%. The VDY yield is variable but about 3.87%. Our average yield is 5.11% so is much higher. It gives us the extra income and we use some of it to buy more of what we own, which then snowballs into more income to buy more income.

    Since I was more interested in total returns for the grandkids with their limited timeframe, I went 60% VDY and 20% each BCE and EMA. As previously mentioned, my wife and I only really care about income so went with the individual stocks.

    One other interesting thing about VDY is that I did a weighted average yield of all its holdings > 0.1% and it is 4.81% but they only pay out 3.87%. I’m not sure why the inconsistency but in the end, I cared more about total returns for the grandkids.

    One other note on you still contributing to your RRSP so close to retirement. It seems a little odd to me as you are going to start drawing it down in the next few years. After maximizing your TFSA, I would think it’d be better to put the dough into a non-reg account. Don’t forget that any capital gains and dividends within the RRSP are going to be taxed as income when you withdraw them as compared to the lower tax rate in a non-reg.

    I know that we regretted contributing to our RRSP in the years just before retirement. In spite of trying to draw it down once into retirement, it is now resulting in some OAS clawback.

    Ciao
    Don

    Reply
    1. Great stuff, Don.

      I like VDY overall but folks need to know it is very financial heavy. That can work out well over time but near-term, anything is possible with banks and life insurance companies!

      I own most of the top-15 in VDY, XIU, etc. anyhow FWIW.

      I find BCE and EMA very “bond-like”. Same goes with FTS and a few others. Of course, these stocks are not bonds but they provide steady income – you know what I mean – and I will continue to own them as long as they deliver growing dividends….

      Yes, I am contributing to my RRSP for two key reasons:
      1. I like the tax deduction to offset higher income, today, and
      2. I will be in a slightly lower tax bracket in semi-retirement.

      Don’t worry, now that TFSA and RRSP are both contributed to for 2022/maxed out – I’ll still trying to find ways to invest in my taxable account.

      I think you’d be pleasantly surprised how much is invested there. Hint: these updates are related to TFSAs and taxable only. Always have been 🙂
      https://www.myownadvisor.ca/july-2022-dividend-income-update/

      Little chance of any OAS clawback in my future unless I continue working full-time throughout my 50s. Not very likely!

      Great comment.
      Mark

      Reply
  5. After certain age, you really shouldn’t seek high risk-return, no dividend paying (not even profitable) types of stocks. I think the most important part of your strategy is that you are not overly concerned with stock market fluctuations as long as you receive decent dividend and don’t need to cash in the investment. So, I like it.

    Reply
  6. Great post Mark, thanks for the great summary. A question on XAW, if you have USD and want to keep it in USD, what are your thoughts on XAW.U for taxable accounts to diversify outside of Canada? Other ETF suggestions for taxable accounts that are ex Canada in USD?

    Thanks,
    Charlie

    Reply
    1. I just own XAW Charlie inside my TFSA for long-term growth but have a bias to owning U.S. stocks and U.S. ETFs in my RRSP and LIRA.

      I don’t have much thoughts on XAW.U other than it should provide the same returns in USD $$ and as long as you aren’t switching CDN $$ to USD $$ and losing out via currency conversion costs, either one should work well for ex-Canada diversification.

      Not unlike ZSP and ZSP.U that trade on the TSX. One is in CDN $$ and the other in USD $$.

      Be mindful in a taxable account XAW is pretty tax efficient too vs. holding in TFSA or RRSP with XAW:
      https://www.cashflowsandportfolios.com/diversified-etf-model-portfolios-canada/


      ETF MER – TFSA MER – RRSP MER – Non-Reg
      ZCN 0.06% 0.06% 0.06%
      XAW 0.53% (0.22% + 0.31%*) 0.53% (0.22% + 0.31%*) 0.26% (0.22% + 0.04%*)
      ZAG 0.09% 0.09% 0.09%

      Regardless of withholding taxes, I like XAW inside my TFSA for boring, long-term growth beyond Canada. I know I need that so I have some.

      Thoughts?
      Mark

      Reply
  7. Thank you very much for posting on a reg basis very informative retirement comments and investment ideas.

    Do you like BMO CDN BANK ETFs ?

    ZWB – BMO Covered Call CDN Banks ETF or
    ZEB – BMO Equal Weight CDN Banks ETF

    Yeah or Nay ?

    Or shall I go out and buy the equity itself and receive in a non reg account dividend tax credit plus juicy dividend ?
    Or it isn’t a good time to buy Canadian Banks because still too early for them to be reporting loan loss provisions as a result of higher mortgage default rates ?
    Thank You !

    Reply
    1. Gosh, lots of questions!

      I think covered call ETFs are just fine, but, my plan avoids them for simplicity – that’s all.

      I prefer to own a basket of individual stocks in Canada, then own mostly ETFs to invest in U.S. and international markets.

      That’s it. It’s boring but it works for us.

      I suspect banks are beaten up now and buying some could be good for higher returns years down the road. I buy more of them (banks, and also utilities, telcos, etc.) every single year. 🙂

      Mark

      Reply
    2. hotruner,
      ZWB has outperformed ZEB in the near term (YTD to 1-Yr) down market but it really is an income focused ETF designed for those who seek income over growth, ie; the retired folks like me lol. I confess to owning a little bit of ZWB and 3 other covered call ETFs so my portfolio yield stays in my target range of 4% to 5%. Its currently a bit over 5% due to the falling market.

      From your comment it appears you are more concerned with price returns than you are over income. Holding the individual bank stocks or ZEB will definitely outperform ZWB in growth over the long haul.

      Reply
      1. Ya, for the record, I don’t mind ZWB or ZEB or related BMO products in fact.

        For the former, ZWB = Canadian banks – have been great investments. I happen to own them all/top-6.

        ZEB = Canadian banks without covered calls, over same investment period, 10-years the returns are higher 🙂

        As such, it is also my hunch that holding the banks, or individual banks, should (I say should) have higher returns than the strategies related to covered calls in trying to outsmart the banks’ returns 🙂

        Mark

        Reply
    1. Thanks for the comment!
      I think covered call ETFs are “OK” but compare these two ETFs, for the last 5 years, and let me know your thoughts 🙂

      XIU:
      https://www.blackrock.com/ca/investors/en/products/239832/ishares-sptsx-60-index-etf

      ZWC:
      https://www.bmogam.com/ca-en/advisors/zwc-bmo-canadian-high-dividend-covered-call-etf/

      I don’t see any place for these covered call ETFs in my portfolio now or in retirement. If I change my mind, I’ll let readers know! 🙂
      Mark

      Reply

Post Comment