Many financial advisors caution that keeping large amounts of cash is often an inefficient way to save. With inflation steadily eroding purchasing power and interest rates remaining relatively low for many savings products, putting money to work through investments tends to make more sense for long-term goals.
Holding cash also means missing out on compound growth and the extra benefit of sheltering returns inside a tax-free savings account (TFSA). Despite its name, a TFSA can hold more than just cash: it accepts a wide range of qualified investments, including exchange-traded funds (ETFs). Used correctly, ETFs inside a TFSA can help investors build diversified portfolios that grow tax-free.
What are ETFs?
ETFs are pooled investment vehicles that hold baskets of stocks, bonds or other assets—much like mutual funds. They come in many varieties: some replicate broad market indexes, while others target particular sectors, geographic regions or investment factors. Unlike mutual funds, ETFs trade on stock exchanges throughout the day and their prices fluctuate with market supply and demand. When you buy units of an ETF through a broker or registered dealer, you gain exposure to the fund’s underlying securities without directly owning each one.
Investment firms design and manage ETFs, and the cost to own them appears in the management expense ratio (MER). ETF fees are often lower than those of actively managed mutual funds, which helps explain ETFs’ widespread popularity among cost-conscious investors.
An increasingly popular option is the all-in-one ETF, which combines multiple asset classes and underlying ETFs into a single, diversified product. Examples include Fidelity’s All-in-One Balanced ETF (FBAL) and Fidelity All-in-One Growth ETF (FGRO). These funds allocate across equities and fixed income via lower-cost underlying ETFs to create a globally diversified, one-ticket solution for investors.
Take advantage of tax-free growth
A TFSA, introduced in 2009, lets Canadian residents aged 18 or older hold investments and allow returns—such as interest, dividends and capital gains—to accumulate without being taxed. Contributions are made with after-tax dollars, and qualified withdrawals are tax-free. Unlike an RRSP, TFSAs do not have mandatory withdrawal dates, which adds flexibility for both short- and long-term planning.
Because earnings in a TFSA are not taxed, using this account to shelter ETF gains can substantially enhance net returns over time. As of the latest publicly available statistics referenced here, millions of Canadians hold TFSAs, yet many have not fully used their contribution room—leaving potential tax-free growth untapped.
Capitalize on your contribution room
By 2024, the cumulative TFSA contribution limit for eligible residents stands at $95,000. This amount includes the annual limits since the TFSA’s inception. (Note: the contribution limit is subject to change based on government announcements and indexing; the figure cited here reflects the most recent published total.) Many account holders carry unused contribution room, and contributing regularly—especially to a diversified all-in-one ETF—can be an efficient way to make the most of that space.
All-in-one ETFs are particularly well suited to TFSA investing because they provide instant diversification with a single trade. Whether your savings goal is retirement, a home down payment or a major renovation, a balanced or growth-focused all-in-one ETF can align with those objectives without the stress of selecting individual securities or frequent rebalancing.
FBAL and FGRO, for example, offer exposure to both global equities and fixed income. The equity portion is constructed to capture recognized investment factors—such as value, momentum, low volatility and quality—to enhance the risk-return profile. The fixed income sleeve is designed to reduce overall portfolio volatility and offer diversification, which can be helpful during periods of market turbulence.
The sooner, the better
Unused TFSA contribution room carries forward indefinitely, but contributing earlier allows more time for compound returns to accumulate tax-free. Regular contributions—whether monthly or quarterly—combined with a disciplined approach to investing can take full advantage of compounding and the TFSA’s tax shelter.
In the near term, growth from diversified ETFs can help offset inflation’s impact on savings. Over the long term, the potential appreciation from a well-allocated ETF portfolio can help you reach financial goals faster than holding cash alone. Consistency and a long-term perspective are key.
Leave the heavy lifting to experts
All-in-one ETFs are intentionally simple to use. Once you choose a fund that matches your time horizon and risk tolerance, investing is typically a single trade through an online broker, traditional brokerage or registered dealer. These ETFs handle asset allocation, underlying fund selection and periodic rebalancing, giving investors a professionally managed, diversified exposure in one place.
Fidelity’s All-in-One ETFs are positioned for a range of investor needs. FBAL targets a balanced approach with a lower-to-moderate risk profile, allocating across equities and fixed income to provide steady growth and risk mitigation. As of Oct. 31, 2023, FBAL’s target mix included approximately 59% equities, about 39% fixed income and roughly 2% allocated to cryptocurrencies.
FGRO is designed for investors seeking longer-term capital growth with a medium risk profile. At the same reporting date, FGRO’s mix emphasized equities more heavily—around 82% equities, approximately 15% fixed income and about 3% cryptocurrencies. Both funds aim to deliver broad geographic and market-cap diversification and are actively rebalanced by professional managers.
These funds also offer relatively low effective indirect management fees compared with many multi-asset solutions: approximately 0.36% for FBAL and about 0.38% for FGRO (figures as at Oct. 31, 2023). Those fees reflect the indirect costs of the underlying Fidelity ETFs; the all-in-one structure is designed to keep costs competitive while providing convenient diversification and professional oversight.
Read more on investing:
- Building a “core and explore” portfolio with an all-in-one ETF
- Taking an active approach to ETF investing in Canada
- Five ways to worry less about your investments with an all-in-one ETF
- What investments can I put in my TFSA?
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An important message from Fidelity Investments Canada ULC
Commissions, trailing commissions, management fees, brokerage fees and other expenses may be associated with investments in ETFs. Please read the ETF prospectus for detailed investment information before investing. The historical rates of return cited are annual compounded total returns for the stated period and include changes in unit value and reinvestment of distributions. They do not account for sales, redemption, distribution or option charges or income taxes payable by a unitholder, which would reduce returns. ETFs are not guaranteed; their values fluctuate and investors may experience gains or losses. Past performance is not indicative of future results.
The management fees directly charged to Fidelity All‑in‑One ETFs are nil. These funds invest in underlying Fidelity ETFs that charge direct management and/or administration fees. Based on underlying weightings, the effective indirect management and/or administration fees were expected to be approximately 0.35% for the Conservative ETF, 0.36% for the Balanced ETF (FBAL), 0.38% for the Growth ETF (FGRO) and 0.39% for the Equity ETF. Actual indirect fees may be higher or lower than these estimates due to underlying fund performance, rebalancing events and strategic allocation changes; indirect fees are reflected in the management expense ratio and posted semi-annually.
Each Fidelity All‑in‑One ETF has a neutral mix that includes a small allocation to Fidelity Advantage Bitcoin ETF™ generally ranging between 1% and 3%. Portfolios that deviate from their neutral mix by more than 5% between annual rebalances will be rebalanced shortly thereafter.
The information provided is believed to be reliable and is intended for information purposes only. Where information is sourced from third parties, accuracy or completeness cannot be guaranteed. This content does not constitute investment, tax or legal advice, and is not an offer or solicitation to buy. Charts and graphs are illustrative and do not predict future returns. Investors should assess strategies according to their own objectives and risk tolerance. Fidelity Investments Canada ULC and its affiliates are not liable for any errors, omissions or losses arising from the information provided.
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