Canada ETF Investing Guide
the ETF investing in Canada. The ETF (Exchange-Traded Fund) is the "pooled investment vehicle that trades on the stock exchange like the individual stock". The MER (Management Expense Ratio) is the "annual fee charged by the ETF provider" — the "typical MER: 0.05% to 0.25% for the index ETFs" (the "much lower than the mutual fund MER at 1.5% to 2.5%"). The asset allocation ETFs are the "all-in-one portfolios" — the "single ETF that holds the globally diversified stocks and the bonds" (the "Vanguard VEQT, the iShares XEQT, the Vanguard VBAL, the iShares XBAL"). The largest Canadian ETF providers: the "BlackRock iShares", the "Vanguard Canada", the "BMO Global Asset Management", the "Horizons ETFs", the "Purpose Investments", and the "CI Global Asset Management". The swap-based ETFs (the "Horizons Total Return Index ETFs") use the "total return swaps to track the index" — the "no dividend distributions = the lower tax drag in the non-registered account".
Popular Canadian ETFs
- All-equity portfolios: The "VEQT (Vanguard All-Equity ETF Portfolio): 100% stocks globally diversified, MER 0.24%". The "XEQT (iShares Core Equity ETF Portfolio): 100% stocks globally diversified, MER 0.20%". The "ZEQT (BMO All-Equity ETF): 100% stocks globally diversified, MER 0.20%".
- Balanced portfolios: The "VBAL (Vanguard Balanced ETF Portfolio): 60% stocks / 40% bonds, MER 0.24%". The "XBAL (iShares Core Balanced ETF Portfolio): 60% stocks / 40% bonds, MER 0.20%". The "ZBAL (BMO Balanced ETF): 60% stocks / 40% bonds, MER 0.20%".
- Broad market ETFs: The "VFV (Vanguard S&P 500 Index ETF): US large-cap stocks, MER 0.08%". The "XIU (iShares S&P/TSX 60 Index ETF): Canadian large-cap stocks, MER 0.18%". The "VCN (Vanguard FTSE Canada All Cap Index ETF): Canadian all-cap stocks, MER 0.05%".
- Bond ETFs: The "VAB (Vanguard Canadian Aggregate Bond Index ETF): Canadian investment-grade bonds, MER 0.09%". The "XBB (iShares Core Canadian Universe Bond Index ETF): Canadian bonds, MER 0.09%". The "ZAG (BMO Aggregate Bond Index ETF): Canadian bonds, MER 0.09%".
ETF Taxation in Canada
- Distributions: The "Canadian dividend distributions (the eligible dividends)" — the "foreign dividend distributions (the US and the international dividends)" — the "interest income distributions" — the "capital gains distributions (the realized gains from the ETF rebalancing)" — the "return of capital (the ROC — the non-taxable distribution that reduces the ACB)".
- Phantom distributions: The "REIT ETFs and the swap-based ETFs may produce the phantom distributions" — the "distributions that are taxable but NOT paid in the cash" — the "increase the ACB of the ETF units".
- Tax-efficient ETF location: The "Canadian dividend ETFs: best in the TFSA (the tax-free dividends)". The "US equity ETFs: best in the RRSP (the no US withholding tax)". The "bond ETFs: best in the RRSP (the interest is fully taxed in the non-registered)".
ETF Providers & Fees
- Commission-free trading: The "National Bank Direct Brokerage: free ETF trading". The "Wealthsimple Trade: free ETF trading". The "Questrade: free ETF buying (the ECN fees apply — the $0.01 per share for the selling)".
- Discount brokerages: The "TD Direct Investing: $9.99 per trade". The "RBC Direct Investing: $9.95 per trade". The "Scotia iTRADE: $9.99 per trade". The "CIBC Investor's Edge: $6.95 per trade".
For the dividend investing and the Canadian dividend stocks, see our Dividend Investing Guide →. For the tax-loss harvesting and the capital gains strategies, see our Tax-Loss Harvesting Guide →.