Should a DIY Investor Go All In on This International ETF?

Exchange-traded funds (ETFs) are a flexible, widely used investment vehicle that can suit many investors, including do-it-yourself (DIY) investors. The Toronto Stock Exchange lists hundreds of ETFs, and Canadian investors can access thousands more through North American markets. ETFs are increasingly common in advisor-managed portfolios and among self-directed investors because they offer low-cost, diversified exposure to a variety of asset classes and strategies.

However, the vast number of ETF choices can be overwhelming. Beyond basic broad-market funds, there are specialized options such as sector ETFs, commodity ETFs, crypto ETFs, inverse ETFs (which increase in value when markets fall), and leveraged ETFs (which aim to return a multiple of market performance). If you plan to explore beyond simple, broad-based funds, professional guidance can be helpful to sort through the choices and risks.

Should you buy the XAW ETF?

The ETF you mentioned, iShares Core MSCI All Country World ex Canada Index ETF (XAW), is a sizable, diversified equity fund with nearly $2 billion in net assets. Its objective is long-term capital growth by tracking the MSCI ACWI ex Canada IMI Index, net of expenses. In practice, XAW provides exposure to U.S., developed international and emerging market stocks while excluding Canadian equities.

XAW holds only a handful of direct holdings, but those are other iShares ETFs, and the combined underlying exposure spans more than 9,500 individual stocks. For many investors, XAW can act as a single-ticket solution to gain broad global equity exposure outside Canada. Keep in mind that Canada typically represents a small portion of the global equity market by market capitalization—around 3%—so excluding Canadian stocks does not remove a majority of global market exposure.

One important feature of XAW is that it is a 100% equity allocation. It contains no fixed-income securities, no built-in cash buffer, and therefore no explicit volatility dampening. If you prefer a single ETF that mixes equities and bonds, there are multi-asset or “one-ticket” ETFs that pair equity exposure with bond allocations at varying risk levels.

Unlike XAW, many multi-asset ETFs include some Canadian stock exposure and a mix of bonds, providing a more balanced, diversified single-fund option for investors who prefer simplicity with reduced volatility.

The costs of investing in international ETFs

If your question about “penalties or limits” refers to historical foreign-content rules, those constraints no longer apply. Prior to 2005, registered retirement savings plans (RRSPs) had limits on non-Canadian content, but those rules were removed. Today, there is no regulatory limit preventing a Canadian investor from holding primarily or entirely international ETFs in any of their accounts.

That said, investing in international or U.S.-listed securities from Canada can carry tax consequences. Canadian-listed ETFs that hold non-Canadian equities may receive foreign dividends that are subject to foreign withholding tax—commonly in the 15% to 25% range depending on the country and the account type. In a taxable non-registered account, Canadian taxpayers can typically claim a foreign tax credit to offset some or all of that withholding when filing their Canadian tax return.

In tax-advantaged accounts like RRSPs or tax-free savings accounts (TFSAs), however, foreign withholding tax on dividends paid into a Canadian-listed fund is generally an unrecoverable cost. That makes account selection and asset location important considerations when implementing an international equity allocation.

Should you go “all in” on a single international ETF?

There is nothing preventing you from investing solely in an international equity ETF like XAW across your Canadian accounts. But it’s important to weigh the trade-offs. Going “all in” on a non-Canadian equity fund may cost you in the form of unrecoverable withholding tax depending on the account, and it may reduce diversification if you omit Canadian equities or any fixed income allocation altogether.

As a DIY investor, make sure you clearly understand your goals, time horizon and risk tolerance before committing to a one-fund strategy. While fee savings are attractive, they won’t help if you pick an allocation that doesn’t match your needs or if you react emotionally to market swings. Consider whether a blend of global equity, domestic equity and bonds —whether achieved through one fund or several—better serves your objectives.

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) in Toronto. He does not sell financial products.

Read more on ETFs:

• For Canadians living abroad, is it worth investing in foreign ETFs?
• What are ETFs?
• Switching from mutual funds to ETFs
• How to use income ETFs for retirement income