What are the best ETFs for my RRSP?

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.

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) – I think these funds offer long-term growth potential for many investor needs who have 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 of these, keep buying one of these over many years of investing and don’t sweat any currency conversions – these funds can be bought and sold in Canadian currency.  Which brings me to my next option.

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 or U.S. dividend ETFs (like I own) 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:

  • VTI – MER = 0.03%
  • IVV – MER = 0.04%
  • *VT – 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.

Vanguard VT ETF

Image courtesy of Vanguard

There are certainly many, many other U.S. ETFs you could consider for your RRSP, but you can also invest in U.S. stocks and/or international stocks via low-cost Canadian ETFs as well.

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 invest in Canadian ETFs that own U.S and/or international stocks (like VUN, XAW, VXC and others) – this approach is absolutely one to consider.

Again, you’ll find some of my favourite low-cost Canadian ETFs on this standing page here.

Should you really want to be aggressive with your portfolio, you can consider owning the all-in-one, all equity ETF VEQT.

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. This way, you can strive to maximize returns from within this account during your asset accumulation years.  This is THE TIME to allow investments inside that account to reach their maximum potential.

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.

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've grown our portfolio to over $700,000 now - but there's more work to do! Our next big goal is to own a $1 million investment portfolio for an early retirement. Subscribe and join the journey!

21 Responses to "What are the best ETFs for my RRSP?"

  1. 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
  2. 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
    1. 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,
      Mark

      Reply
    2. 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
        1. 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
  3. 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
    1. 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.
      Mark

      Reply
      1. Thanks very much, Mark, for taking the time to provide a response. Yes, that does provide some insights and gives me some food for thought. Have a great long weekend.

        Reply
    2. 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

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