ETFs

The Canadian Guide to ETF Investing: Simplicity, Security & Smart Income

If there’s one thing retirement should bring, it’s simplicity.

You’ve worked hard, saved diligently, and now it’s time to put your money to work—with minimal hassle and maximum peace of mind.

For Canadians investing for retirement, ETFs are one of the best-kept secrets in plain sight.

In this article, we’ll explore:

What ETFs are
How to use them in retirement
Why ETFs belong in your toolbox—but not your core plan
And how to avoid the #1 trap

Why ETFs Are the “Easy Button” for Retirees

Let’s be honest: once you retire, the last thing you want is to babysit a complex, high-maintenance portfolio. You don’t want to track 45 stocks or time the market. You want income, simplicity, and peace of mind.

That’s where ETFs (Exchange-Traded Funds) come in.

These low-cost, diversified bundles of investments are perfect for Canadians who want a hands-off strategy that still delivers results—and they’re especially powerful in retirement.

What Is an ETF?

An ETF is a basket of stocks, bonds, or both you buy on the stock exchange. Think of it like buying a package of investments in one easy trade.

You’ll find ETFs for nearly everything:

🇨🇦 Canadian dividend payers
🇺🇸 U.S. market leaders (e.g., S&P 500)
🌎 Global tech and emerging markets
💵 Bonds and fixed income
🧊 Even Cash ETFs (we’ll get to these soon)

Why retirees love them:
ETFs offer instant diversification, low fees, and fewer decisions to make. You can build a complete retirement portfolio with just one or two ETFs.

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This free guide reviews 20 income-focused products. In the one-page summaries, we highlight the pros and cons, common mistakes to avoid, and who should use them.

We also created a rating system to highlight the difference between each product. The idea is to provide you with as much information as possible so you can make the right choice for your situation.

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How Would I Invest $1M Using ETFs?

Let’s say I’m retired today with $1 million and want to keep it simple. Here’s how I’d break it down:

Option 1: Balanced & Reliable (60/40 mix)

60% equity ETFs for growth and dividends
40% bond ETFs for stability

📈 Goal: Generate $30K–$40K in annual income and preserve capital.

Example ETFs:

XEI.TO (Canadian dividends)
ZAG.TO (Canadian aggregate bonds)

Option 2: Growth-Focused (80/20 mix)

80% equities for long-term compounding
20% fixed income for cushion

Example ETFs:

VFV.TO (S&P 500)
XIU.TO (TSX 60)
ZAG.TO (bonds)

Option 3: All-in-One Simplicity

If I didn’t want to deal with asset allocation at all? I’d go with a single all-in-one ETF that already includes everything.

Top all-in-one picks:

VBAL (60/40)
VGRO (80/20)
XEQT (100% equity)
XGRO / ZGRO – Canadian alternatives

📌 Why I like them:

Global diversification
Automatic rebalancing
Extremely low MER (~0.25%)
Perfect for monthly withdrawals

Honestly, this is the strategy I’d hand to my spouse if she had to manage our finances solo.

To give you an idea of the returns an all-in-one ETF can offer, I have analyzed XEQT in the video below.

Where Do Cash ETFs Fit In?

Cash ETFs are like a high-interest savings account inside your brokerage account. They hold short-term government securities or T-bills and pay interest monthly.

🔍 When to use them:

Emergency fund
Cash reserve for the next 1–3 years of expenses
Temporary “parking spot” for your money

✅ Pros:

Very low risk
Highly liquid (sell anytime)
Monthly income

❌ Cons:

Modest returns that won’t keep up with inflation
Fully taxable as interest income (unless held in a TFSA/RRSP)
Not a growth tool—just a buffer

💡 Pro tip: Use Cash ETFs in a bucket strategy to smooth out withdrawals and avoid selling equities during downturns.

Don’t Overdo It: Avoid ETF Overload

One of the most common ETF investing mistakes? Buying too many. Here’s what happens:

“I’ll buy one Canadian dividend ETF… oh, and a U.S. dividend ETF… and maybe a global growth one… and a few sector ETFs… and—wait, why do I own 1,200 companies now?”

Here’s the truth: most ETFs already own hundreds (or thousands) of holdings. Buying more means duplication, higher fees, and decision fatigue.

🎯 Keep it tight:

1 ETF → All-in-one solution
2–3 ETFs → Perfectly fine for a balanced strategy
4+ → You better have a solid reason

Mike’s Simple ETF Selection Checklist

Whether you’re building a brand-new ETF portfolio or fine-tuning an existing one, this no-nonsense checklist will keep you on track:

✅ Start with your goal – Income, growth, or balanced?
✅ Stick with trusted providers – Vanguard, iShares, BMO, Horizons
✅ Compare MERs – Under 0.30% is ideal
✅ Check top holdings – Avoid overlap
✅ Currency exposure – Hedged or not? Know what you’re buying
✅ Assets Under Management (AUM) – Larger = more liquidity

Why All-In-One ETFs Are My Favourite Option for Retirees

I’ve said it before, and I’ll say it again: if I ever stop picking stocks, I’m going all-in on all-in-one ETFs.

They’re simple, cost-effective, globally diversified, and handle rebalancing for you. No spreadsheets, no second-guessing, no stress.

Imagine having just one line on your investment statement… and knowing it includes thousands of companies worldwide. That’s not just convenience—it’s smart portfolio design.

If you’re a retiree looking to draw income each month, all-in-one ETFs make it ridiculously easy. Just sell a few units when needed. Done.

Final Thoughts: Build a Retirement Portfolio That Works for You

Here’s what I’ve learned after more than a decade of working with dividend and ETF investors:

👉 You don’t need to make it complicated to be successful.
👉 The best portfolio is one you understand—and can stick with.
👉 ETFs give you instant access to diversification, low fees, and income.
👉 All-in-one ETFs are perfect for Canadians who want a hands-off solution.
👉 Cash ETFs aren’t the main dish, but they’re a great side.

And above all, remember: your plan only works if you actually follow it.

Don’t let perfectionism delay progress. Whether you build a 3-ETF mix or go with a single all-in-one fund, the key is to stay invested and consistent.

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Example of the ratings found in the free income-products guide.

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High-Income Products: Split-Shares and Covered-Call ETFs

Continuing last week’s article about whether high-income products rally make your life easier, we now look at two other types of high-income products: split-shares and covered-call ETFs.

Split-share corporations

Specialized investment corporations are created primarily to provide investors with a choice: a regular income stream or potential for capital appreciation. They do so by splitting their shares into two classes.

A split-share corporation is created by purchasing a diversified portfolio of common shares of other corporations, often blue-chip stocks. Then, the corporation issues shares:

Preferred Shares: usually offer regular dividends, have a set redemption value, and take precedence over other shares if the company is dissolved.
Capital Shares (or Class A): are more volatile but provide potential capital appreciation. They receive the residual value after preferred shareholders are paid in full. They can show high returns if the portfolio appreciates, and large losses when the reverse happens.

Using the dividends of the underlying portfolio, split-share corporations pay the preferred shareholders first. They reinvest excess dividends into the portfolio or distribute them to capital shareholders.

Split-share corporations usually have a maturity date, when their sell their assets and pay the proceeds to shareholders. Again, preferred shareholders are paid first, up to their original investment plus accrued dividends. Remaining funds go to capital shareholders.

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Advantages and risks

Advantages of split share corporations include the choice between a more stable income or potential capital appreciation, tax advantages for some investors due to how they distribute the income, and potential for high income, as long as the company pays.

Unfortunately, they come with many risks. Not immune to market fluctuations, both preferred and capital shares can suffer if the portfolio’s stocks drop, with capital shares most vulnerable.

With an under-performing portfolio, many shareholders could redeem their shares, forcing the company to sell assets at an unfavorable time; capital shareholders might not recover their full investment upon the corporation’s maturity.

Split-share corporations often borrow to purchase assets, which amplifies both gains and losses based on asset performance vs. interest rates and heightens the volatility of capital shares. Poor-performing assets can also hinder loan repayment and affect the corporation’s credit rating.

Rising interest rates can devalue their portfolio just when fixed-income options become more attractive to investors.

Covered call 101

A call is an option granting the right to buy an asset at a set price within a specified period. Imagine DSR trading on the market with a stock price of $100. You buy an option to buy DSR stock at $105 in the next three months. If DSR stock surges to $120 during that time, you can buy the stock at $105, making an immediate profit. The owner of the shares who sells you the call option is writing a covered call.

Let’s say DSR trades at $100 with a dividend of $1 quarterly, a 4% yield. You hold shares bought at $100 per share. You write a call option on those shares, granting the buyer the right to buy 100 shares at $110. The buyer of pays you $200 for the option.

If the stock price is stable or decreases, the buyer doesn’t exercise the option at $110, letting it expire. You keep your shares. You earned $200 from selling your option and another $100 in dividend (quarterly dividend of $1 X 100 shares). Selling the option generated additional income without any risk.

What if the stock price reaches $120? The buyer exercises the option; you must sell the shares at $110. You earn $200 from selling the option, $100 in dividend and $1,000 in profit (($110 – $100) X 100 shares), totaling $1,300.

Had you not sold the option, you’d show a paper profit of ($120 – $$100) X 100 shares = $2,000 of stock price appreciation, + $100 in dividend = $2,100. While you made money selling the option, you capped your total returns to the option price.

This is a popular strategy among income-seeking investors. So popular in fact, that there are several Covered Call ETFs offering juicy yields. But are they really worth the risk?

Create a long-lasting retirement income with our Dividend Income for Life Guide. Download it free!

Covered call ETFs

Writing covered calls can work well for individual investors, assuming they write judicious options; it’s a different story with manufactured covered call ETFs.

I suggest you watch this video about high yield covered call ETFs.

Let’s compare two ETFs, ZWB and ZEB, both manufactured by BMO, and both having a long history.

ZWB is a covered call ETF on Canadian banks.
ZEB is an equally weighted ETF on the big six Canadian banks.

This graph shows how much money investors leave on the table with ZWB for the sake of higher income. Imagine investing $10K in each product and reinvesting all dividends…

As of 08/17/2023, ZWB offers a 7.18% yield and ZEB about 4.41%.

If you really want the 7.18% yield, cash ZEB’s dividends and sell 2.77% extra of your investment monthly to equal that yield. Over time, you’ll have a lot more money in your pocket. You can withdraw more than 7.18% yield or withdraw 7.18% for longer. In both cases, the pure investment strategy generates better results.

JPMorgan Equity Premium Income (JEPI)

Incredibly popular on the US market is JEPI with its yield >6%. This ETF uses options to generate a high yield from a well-diversified portfolio of 137 holdings.

Source: JPMorgan

Sadly, we’re limited to a short history. Nonetheless, when comparing JEPI to classic investment strategies, i.e., dividend growth investing or index investing, we see similar results as in our earlier example.

The next graph shows the total return of a $10,000 investment, reinvesting dividends, of JEPI and these three investment vehicles:

Investment vehicle	Description
Schwab US Dividend Equity (SCHD)	Dividend ETF focused on the Dow Jones U.S. Dividend 100 index
SPDR S&P 500 (SPY)	Classic index fund tracking the S&P 500
Vanguard Dividend Appreciation ETF (VIG)	Dividend growth ETF

Where’s the investment in JEPI after three years? At the bottom. As it was for the Canadian Bank ETF vs. Canadian Bank Covered Call ETFs, the income-focused product finishes dead last.

Conclusion

While covered call ETFs aren’t the worst products, they don’t provide added value compared to index or dividend growth investing. Focusing on high-income products often means leaving money on the table.

A classic investment strategy that generates a higher total return will serve you better. Then, you can sell a few shares and create your own retirement income.

Dividend ETFs, Are They Worth it?

How about dividend ETFs? I’ve been asked this question often during webinars. ETFs are useful due to their offering the investor immediate diversification along with minimal fees. To be honest, it’s the perfect solution for anyone who doesn’t want to put the time and energy into managing their portfolio and selecting their stocks.

However, in most cases, this also means you are likely to be leaving money on the table. Dividend ETFs could be too diversified. Having over 100 dividend stocks may hurt total return. I found out that investing in a small number of stocks brings better results.

I haven’t yet found a dividend ETF that shows only companies that I would like to invest in. If I look at the top holdings for XDV.TO for example, its largest holding is CIBC (CM.TO). While Canadian banks are great, CIBC ranks #5 in my Canadian Banks Ranking. The other thing I dislike is that they count all 6 banks in their top 10, which may lead one to believe they haven’t heard of the concept of diversification.

source: BlackRock iShares Canadian Select Dividend Index ETF

To get back to the question: are dividend-paying ETFs worth it? If you don’t have the time, knowledge or interest to manage your portfolio, ETFs could be a good strategy. Selecting individual stocks will help you reach your goals faster and stay closer to your investing values.

However, that doesn’t mean ETFs can’t coexist with individual stocks in your portfolio.

What Could be Really Worth it?

I can see several reasons why an investor would consider ETF investing. Here are a few good examples.

Benchmark

Since the beginning of DSR, we have been using VIG and XDV.TO as our benchmarks. The point of using benchmarking is to assess our strategy vs. an existing alternative solution. Why would I spend time managing my portfolio if I could quickly buy an ETF and make the same money? It only makes sense if I can do better than existing investing solutions.

The problem with benchmarking is we often become too focused on short term results. One must know that looking at any performance records under three years is pure noise. It starts to be meaningful after five years and is very meaningful once you have gone through a full economic cycle.

Start investing

Many asked me how I started my RESP, the account used in Canada to pay for childrens’ college tuitions. I started this account a long time ago with just a couple of hundred dollars. It was not enough to build a portfolio and the monthly systematic investment plan would add a lot of complexity if I had to pick a different stock each time. Therefore, for the first few years, I invested all that money in ETFs until I built a value above $10,000. I then switched this portfolio to the DSR investing methodology focusing on dividend growers.

As a first step in the investment world, ETFs will provide you professional support (ETFs are built and managed by experienced industry professionals), instant diversification (invest in 50-100 securities with a single trade), and peace of mind (no need to manage the ETFs composition). Therefore, it’s the perfect vehicle to use to start a new portfolio. I’m currently showing this same strategy to my two teenagers (and soon to my 10yr old son).

Diversification

While I wouldn’t use ETFs to replace any of my individual stocks, you might improve your portfolio diversification by using them for other asset classes. You can invest in fixed income products such as bonds and preferred shares (we have over 80 bond ETFs and 18 preferred share ETFs in our screener). You could also invest in commodities, emerging markets, or cryptocurrencies through ETFs.

Searching by theme using the search box of our screener, you can rapidly find viable options to add to your portfolio. This additional diversification may help to reduce volatility (bonds / preferred shares), protect your portfolio against inflation (commodities) or hopefully improve the upside potential. Those assets won’t necessarily generate dividends, but they can bring something else to your portfolio.

Exposure to a sector without the work

It could also be a good strategy if you want to gain exposure to a specific industry that you don’t fully grasp. I’ve expressed my interest for the technology sector in the past. Some investors may be intimidated by new technologies and wouldn’t be comfortable analysing growth opportunities in this sector. Some others might have a hard time understanding big pharma’s pipeline development and patents while others might be lost trying to understand how life insurance companies work. Many times, Canadian investors have told me they were good at selecting Canadian stocks but would rather use ETFs to gain exposure to the U.S. markets.

If you aren’t comfortable with investing in a specific sector or market, you can use ETFs. You would benefit from an ETFs best quality (diversified, cheap and professionally managed).

Build a core portfolio

Finally, ETFs could be a good tool to build a core portfolio and then add some spice with individual stocks. Think of investing as cooking a good meal. You can use ETFs as your “core soup” while you make necessary adjustments with different spices by using individual stocks. A 50% ETF and 50% stock portfolio might bring you the peace of mind you may be looking for while you keep control of a good part of your money.

How to Select Your ETFS

As is the case with any investment products, ETFs may track the same asset or follow the same investing strategy, but they are not created equal. There are a few things you must consider before making your decisions.

Financial metrics

In the DSR ETF screener, you will find a good list of metrics to analyze ETFs. The year to date, 1yr, 3yr and 5yr returns will tell you much about the performance of the ETF. It is then easier to know what to expect from this product and make comparisons.

The expense ratio is also very important since you can then pick the cheapest (and hopefully best performing) ETF for a specific sector. If you can’t decide between two similar ETFs, pick the one with the cheapest fees. It is likely the one that will have the best chance of performing well in the future.

Volume and assets under management (AUM) will tell you more about the liquidity and the size of the ETF. It’s important to invest in assets that are liquid. You also want to avoid the latest flavor of the month.

The historical spread will also give you an idea on the ETF’s volatility (the wider the spread, the higher volatility). This could have a big impact on price fluctuations during a market crisis. We saw how some preferred shares and bond ETFs plummeted in March of 2020.

The discount/premium to NAV (net asset value) will tell you if you are paying more than what the ETF is worth or if you are getting a bargain. In general, you want this number to be as close to zero as possible in order to buy at the right price.

ETF analysis

While you can easily make your selection based on basic metrics, but if you want exposure to commodities, or bonds, you must perform a few additional checks if you want an ETF that includes equities.

Once you have selected a pack of ETF that might work with your portfolio, you still have some work to do. The ETF analysis must include the comprehension of the investment strategy. You can usually find this information from the ETF manufacturer (the financial firm managing and selling the ETF). Here’s an example from VIG:

“The investment seeks to track the performance of the S&P U.S. Dividend Growers Index that measures the investment return of common stocks of companies that have a record of increasing dividends over time. The adviser employs an indexing investment approach designed to track the performance of the index, which consists of common stocks of companies that have a record of increasing dividends over time. The adviser attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.”

Some are obviously more complicated or opaque than others. Here’s ZWB.TO, a covered call ETF:

“BMO Covered Call Canadian Banks ETF seeks to provide exposure to the performance of a portfolio of Canadian banks to generate income and to provide long-term capital appreciation while mitigating downside risk through the use of covered call options.”

You know they will use covered call options. Unfortunately, you won’t know much about how their option writing process works with this information. If you are curious, you can also read more in the ETF prospectus also found on the company’s ETF website.

The second step is to check the ETF’s top holdings. It will quickly determine if this ETF could fit in my portfolio or not. By looking at the top 10 holdings, you will see what drives this investment. If you cringe on one or two company names, you might want to skip this one and select an alternative ETF.

The third step will require you to look at the ETF sector allocation. At DSR, we are currently able to give you the ETF sector if it’s a single sector ETF, but we can’t ventilate several sectors. To do that, you must go to the ETF’s website and look at the graph provided by the financial firm. Looking at how the ETF is invested throughout various sectors will allow you to better predict the impact on your portfolio’s volatility and upside/downside potential. This extra step requires more calculations, but it is crucial for you to include your ETFs allocation in your portfolio.

Finally, I wouldn’t over complicate things when it comes down to ETF investing. ETFs have been created to be efficient and simple to understand. Once you have selected the asset exposure you desire, look at a few financial metrics. Then, confirm your choice by looking at what’s inside the hood. Don’t attempt to track each ETF movement and change in allocation. You may spend as much time as you would have if you selected individual stocks. The power of ETF investing resides in the simplification of your strategy. Therefore, adding a dozen ETFs doesn’t necessarily improves your portfolio quality or simplicity.

Warning: Canadian Dividend ETFs’ Dividends Aren’t Stable

You read right: dividend ETFs don’t pay a stable dividend. It creates lots of confusion and frustration among investors! Let’s take a look at how the iShares Canadian Select Dividend ETF (XDV.TO) rewarded its investors.

Dividend ETFs will receive dividends from the company they invest in. They may also reward investors with additional distributions generated by capital gains or other profits generated by the liquidity or other investment vehicles inside the ETFs.

As you can see in the previous graph, the dividend eventually goes up. Unfortunately, it will not be steady from quarter to quarter.

Final Thought

I am not considering investing in ETFs any time soon. However, I consider this product to be a great tool for investors. The fact that you can quickly diversify your portfolio at a ridiculously low price makes ETFs an investors friend. It’s the perfect fit if you want to invest in a sector but don’t want to do the extra research attached to stock picking.

If you are happy with individual stocks like I am, please do not feel the need to add ETFs to your portfolio. If your strategy is working already, there is no need to fix something that is not broken.

Covered Call ETFs – Income Strategy

Many Canadians have used dividend investing to generate a stable source of income. But did you know you could increase this income? By writing covered call options on your holdings, you can boost your investment revenue. Since not all investors are comfortable writing options, financial firms have created covered call ETFs.

Covered call ETFs are dynamically managed funds that provide you exposure to dividend stocks on top of writing covered calls. This strategy generates additional revenue through the sale of each option. Therefore, you don’t need to worry about anything as a professional takes care to boost your investment yield.

While a dividend stock paying a yield above 5% could raise a red flag for many investors (there is no free lunch in finance), it’s relatively easy to find a safe covered call offering a better yield.

Let’s analyze three of the highest-yielding Canadian covered call on the market.

ZWG – BMO Global High Dividend Covered Call ETF

This is a relatively new covered call ETF that focuses on a wide variety of companies worldwide. It currently writes covered calls on around 50 stocks to produce a yield close to 7% and a low beta of 0.74. ZWG looks like a perfect fit for an investor looking for a high income and some stability (beta under 1).

The first thing I look at when I analyze ETFs is the composition of the top ten holdings. I can rapidly identify if I want to invest in the ETF’s favorite companies. For BMO Global High Dividend Covered Call ETF, the top ten represent 38% of all holdings. You can find big names such as Microsoft (MSFT), Home Depot (HD), and McDonald’s (MCD).

ZWG is geared to generate growth and perform during a bull market with a concentration in information technology (24%), financials (17%), and consumer discretionary (14%) sectors. With 70% of U.S. exposure, it’s not as diversified as expected.

We wanted to compare the BMO Global High Dividend Covered Call ETF total return against the Vanguard Dividend Appreciation ETF (VIG) and an S&P 500 ETF (SPY). We want to see if it was worth it to invest in a covered call ETF instead of following a dividend growth investing strategy or simply buying an index. While the covered call ETF is underperforming the other two investment strategies, results aren’t meaningful considering ZWG was created in January 2020.

Let’s move to a covered call ETF that was created in 2017…

ZWC – BMO Canadian High Dividend Covered Call ETF

The Canadian high dividend covered call ETF is similar to the Global High Dividend Covered Call ETF, but it has a more extended history and focuses on Canadian equities. The yield is lower (6%), but you avoid currency fluctuations since all money is invested in Canadian equities. ZWC also pays a monthly dividend and shows similar management fees (around 0.72%).

Out of 35 positions, the top ten represent 47% of ZWC. Unfortunately, this covered call ETF composition looks a lot like the TSX. There is a strong concentration in the financials (38%) and energy (15%) sectors. You will find 4 Canadian banks and a life insurance company among the top ten. This portfolio would be very easy to replicate in your brokerage account if it wasn’t for the covered call option strategy.

We used the iShares Canadian select dividend ETF (XDV.TO) and a TSX index ETF (XIU.TO) to see how the BMO Canadian High Dividend Covered Call ETF fares against other strategies. This time, we had a better time horizon (around 5 years). However, the conclusion is the same: the covered call ETF underperforms both dividend investing and index investing strategies.

Now, let’s move on to Canadian’s favorite covered call ETF: ZWB – BMO Covered Call Canadian Banks ETF!

ZWB – BMO Covered Call Canadian Banks ETF

This covered call ETF is pretty straightforward: it writes call options on the big six Canadian banks. We like that this ETF exist since 2011 as it gives us a long history to study. The management fees are similar to the other two covered call ETF (0.72%) and ZWB provides a yield of 6% with a beta in line with the market (1.00). You’ll notice the etf includes seven holdings…

The most important position of the BMO Covered Call Canadian Banks ETF is… another ETF! The BMO Equal Weight Banks Index (ZEB.TO) represents about a quarter of the total holdings. You then find the bix six:

Since Canadian banks tend to outperform the market due to their unique position in an oligopoly and the ETF is relatively simple (it includes only six companies), we thought of comparing ZWB to the investment return of each of the big six. Surprisingly, the covered call strategy greatly underperforms the average return from the six banks. The covered call ETF generated a total return (capital + dividend) of 163% during the period, while the average performance of the six banks reported 256% on average. Unless you are a big fan of ScotiaBank (149%), you would have done better if you had selected any other banks vs. the ETF!

Final Though

We can appreciate the interest in high-yielding investment products. Covered call ETFs provide a monthly source of income, and their yield is way above what the market offers.

However, keep in mind that you leave a lot of money on the table if you choose covered call ETFs instead of investing directly in the companies’ stocks.