Exchange-traded funds (ETFs) suit investors at every stage of life, but they can be particularly useful for retirees and those approaching retirement. ETFs offer easy, cost-effective diversification across asset classes and geographies, which helps reduce the risk of being overly exposed to any single stock. That said, concentration risk still exists—sector and theme ETFs (for example, AI-focused funds) can concentrate exposure and often carry higher fees. Below is a practical look at retirement-oriented ETF choices for Canadian investors.
I began researching this topic as part of a MoneyShow presentation scheduled for early September on MoneySense’s ranking of the best ETFs in Canada. The session will be led by me and MoneySense executive editor Lisa Hannam. Readers may recall I previously led the annual ETF feature when it was called ETF All-Stars; this year’s edition was guided by Michael McCullough and a panel of seven Canadian ETF experts.
Although the MoneySense ETF list is designed for investors across the financial life cycle, many of the panel’s recommendations are suitable for retirees. The panel didn’t explicitly label funds as “retirement ETFs,” but several selections are well suited to income-focused, lower-volatility portfolios. I discussed several ideas below with a few panel members to highlight practical approaches.
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Are asset-allocation ETFs all a retiree needs?
For many retirees, a single all-in-one asset allocation ETF is an attractive option. These “one-ticket” ETFs hold a diversified mix of global equities and fixed income, are regularly rebalanced, and simplify portfolio management. They make it easier to sell holdings when you need income, and their management expense ratios (MERs) tend to be modest—often around 0.2%.
As Ben Felix, a MoneySense panellist and head of research at PWL Capital, points out, these ETFs are internally rebalanced, which reduces maintenance. Vanguard launched this style of all-in-one funds in Canada in 2018, and other issuers such as BMO, iShares and Horizons followed with competing products.
Younger Canadians might prefer more growth exposure—100% equity ETFs such as Vanguard’s VEQT or BlackRock’s XEQT—while those closer to retirement often favour balanced options. Popular balanced ETFs include VBAL (60/40), XBAL and ZBAL. Other common choices are 80/20 funds like VGRO or ZGRO for moderate growth with some bond exposure.
The MoneySense ETF feature narrowed its 2023 asset-allocation picks to a few core ETFs spanning risk levels from aggressive all-stock allocations to more conservative mixes. For retirees, VBAL is a solid choice for a classic 60/40 approach; others may find VGRO or similar funds appropriate depending on risk tolerance. Those seeking even more conservative positions can consider 40/60 funds such as VCNS, XCNS or ZCON, which shift more weight into fixed income while still keeping meaningful growth exposure.
Your other sources of retirement income matter when choosing allocation: investors with a generous inflation-indexed defined benefit pension may justify a more aggressive mix, while those without one may prefer a more defensive allocation. In practice, adjusting risk in roughly 20% increments—moving up or down a step in allocation—can be a practical rule of thumb.
Tactical overlays for inflation, low volatility and themes
Many investors, including retirees, may want to layer tactical positions on top of an asset-allocation ETF. Most all-in-one ETFs focus on equities and bonds and have limited exposure to alternative asset classes such as bullion, commodities or broader real assets. Adding tactical holdings can provide inflation hedges or dampen volatility.
Panellists Yves Rebetez (Credo Consulting) and Mark Seed (My Own Advisor) caution against relying entirely on asset-allocation ETFs because markets, interest rates and inflation can be unpredictable. Rebetez notes asset-allocation funds are “okay, as long as bonds behave,” but bond markets remain unsettled and can affect returns. Conversely, Ben Felix highlights that higher yields in fixed income can be beneficial for long-term investors following recent rate volatility.
One practical approach is to allocate 80% to a core asset-allocation ETF—say VCNS for a more conservative base—and reserve 20% for tactical equity or alternative ETFs. That blend could aim for a net 50/50 risk profile if the tactical holdings are equity-heavy. Tactical additions might include inflation hedges such as gold, commodities or REITs, as well as low-volatility equity ETFs to reduce portfolio swings.
For taxable (non-registered) accounts, consider low-volatility Canadian or U.S. equity ETFs that also provide attractive yields, like some of BMO’s or iShares’ low-volatility offerings. These can let retirees retain equity exposure while moderating downside risk.
Another tactical avenue is defensive sector ETFs. Panellist Dale Roberts has written about “retirement” or “defensive” ETFs on his Cut The Crap Investing site, favouring sectors such as consumer staples, health care and utilities. I also own diversified real asset funds like the Purpose Diversified Real Asset Fund (PRA/TSX), which includes precious metals and commodities exposure, and BMO’s global infrastructure ETF (ZGI/TSX).
Canadian investors can also use Canadian Depository Receipts (CDRs) traded on the TSX to gain exposure to large U.S. companies in Canadian dollars—examples include Berkshire Hathaway and the major U.S. tech names, which some investors use to express thematic bets like AI. CDRs can be useful tactical building blocks in a retirement portfolio.
Defensive sector ETFs for Canadian retirees
Dale Roberts highlights three defensive sectors: consumer staples, global utilities and health care. Investors can choose U.S.-listed ETFs or Canadian-listed equivalents on the TSX. U.S. options include SPDR ETFs like XLV (health care), XLP (consumer staples) and XLU (utilities). Canadian alternatives include Harvest’s HHL and BMO’s ZHU for health care, BMO STPL for global consumer staples and Harvest’s HUTL for utilities.
U.S. sector ETFs are typically concentrated in U.S. stocks, while many Canadian-listed defensive ETFs maintain global exposure with a heavy U.S. weighting. Some Canadian ETFs, such as XST for Canadian grocers, are all-Canadian and can be especially tax-efficient for non-registered accounts that benefit from the Canadian dividend tax credit.
Low-volatility ETFs for Canadian retirees
Because U.S. stocks represent roughly half of global market capitalization, low-volatility U.S. ETFs can be useful for conservative portions of a retiree portfolio. Panellist Mark Yamada (PUR Investing) emphasizes that choosing U.S. equities is different from choosing a low-volatility strategy; both goals aim to improve long-term returns but require separate consideration.
Yamada recommends owning broad U.S. indices for diversification—S&P 500, Nasdaq-100 or the total U.S. market—while being mindful of sector exposures. U.S. indices tend to be heavier in information technology and health care and lighter in financials, energy and materials compared with the S&P/TSX Composite.
S&P/TSX Capped Composite versus U.S. indices and the U.S. total market
| Sector | S&P/TSX Comp | S&P 500 | Nasdaq-100 | U.S. total market |
| Financials | 30.7% | 12.4% | 1% | 10.2% |
| Energy | 16.6% | 4.1% | 0.4% | 4.3% |
| Industrials | 13.7% | 8.5% | 4% | 12.7% |
| Materials | 11.7% | 2.5% | n/a | 2% |
| Information technology | 7.9% | 28.3% | 50.8% | 30.1% |
| Utilities | 4.5% | 2.6% | 1% | 3% |
| Consumer staples | 4.2% | 6.7% | 5.5% | 5.3% |
| Communication services | 4.2% | 8.4% | 17.1% | 2.2% |
| Consumer discretionary | 3.9% | 10.7% | 14.6% | 14% |
| Real estate | 2.4% | 2.5% | n/a | 3.1% |
| Health care | 0.3% | 13.4% | 5.6% | 13.1% |
The table highlights that U.S. indices have much larger weightings in information technology and health care than the Canadian market, which can be important sources of future growth. At the same time, Canadian indices have higher exposure to financials, energy and materials. For retirees seeking steadier compounding and reduced volatility, carefully chosen low-volatility ETFs can help reduce volatility drag on returns.
Low-volatility ETFs differ in construction. Examples on MoneySense’s recommended lists include BMO Low Volatility U.S. Equity ETF (ZLU), iShares MSCI Min Vol USA Index ETF (XMU) and Fidelity U.S. Low Volatility Index ETF (FCUL). Sector weightings and composition vary significantly between these funds, so due diligence is important.
What ETFs should Canadian retirees or near-retirees invest in?
For retirees and near-retirees, the takeaways are clear: choose broad, low-cost core ETFs for the bulk of your portfolio, and inspect sector and regional weightings closely. Consider supplementing a core allocation with tactical holdings for inflation protection, lower volatility or defensive exposure. Not all low-volatility ETFs or sector funds are created equal—read the holdings and make choices that match your income needs, tax situation and risk tolerance.
There are also annuity-like solutions and longevity funds—examples include Purpose Longevity Fund and Guardian Capital’s GuardPath—that can address retirement income longevity in different ways, which we have covered in past columns.
This article covers key considerations but is only an introduction to a broad topic. If you’d like to dive deeper, join the MoneyShow session where we will discuss Canada’s top ETFs and practical portfolio construction tips.
What: Top Canadian ETFs for This Year and Beyond
Who: Jonathan Chevreau and Lisa Hannam
When: Saturday, Sept. 9, 2023, from 12:15 p.m. to 1 p.m. (EST)
Where: Metro Toronto Convention Centre (tap for directions and parking info)
How: Tap the button below to register or call 1-800-970-4355
Cost: FREE!
Read more on ETFs:
- How to use income ETFs for retirement income
- Are ETFs a good investment for an all-weather portfolio?
- How to build an all-ETF portfolio
- Best fixed-income ETFs for Canadian investors