The Best ETFs to Buy and Hold

The stock market goes through periods of rapid growth and decline. Not even Warren Buffet can predict
with perfect accuracy the best stock, ETF, mutual fund, or what the stock market will do tomorrow. It’s
fair to say long term; the stock market will approach new all-time highs as economic growth continues.
There are a few market index ETFs worth holding for us living in Canada in the long run. These products
all have relatively different risks and potential for rewards

1. iShares Core SP 500 Index (XUS)

This ETF tracks 500 stocks of the largest companies available on US markets. There is a relatively low risk
involved with this investment over time. XUS is part of the ETFs offered by Blackrock. Blackrock is an
investment management corporation located in New York. They are currently the world’s largest asset
manager with more than USD$9 trillion in assets. iShares Core SP 500 Index is an investment designed to
diversify your portfolio. It is low cost and is intended to be a long-term core holding. It aims to create
growth by replicating the performance of the S&P 500 Index. It offers a strong rate of return with
reduced risk, perfect for those who want guaranteed gains. XUS is available on the Toronto Stock
Exchange. This means you can purchase the stock using Canadian dollars. However, keep in mind that
non-U.S. residents will have to pay a foreign withholding tax of 15%. The growth of XUS has remained
steady since its introduction to the stock market. Dividends are paid semi-annually to all investors.
iShares Core SP 500 Index (XUS) is a great option for those looking for a low-risk investment with the
opportunity to make considerable gains (check out investing in silver, too).

The top 10 holdings for XUS are:

USD Cash

Apple Inc

Microsoft Corp

Amazon Com Inc

Alphabet Inc Class A

Facebook Class A Inc

Alphabet Inc Class C

Tesla Inc

Nvidia Corp

The current holdings are heavily weighted to iShares Core S&P 500 ETF, which has a current weight of
94.48%.
2. iShares NASDAQ 100 Index ETF (XQQ)

This ETF has more associated risk than XUS but also provides more potential for growth. It follows the
growth of 100 blue-chip companies. These companies are mostly involved in the technology sector. This
is one of the top-performing growth equity ETFs. It is available on the Toronto Stock Market and trades in
Canadian dollars. This ETF aims to provide its investors with long-term capital growth. XQQ replicates the
performance of the net of expenses of the NASDAQ-100 Currency Hedged CAD Index. It is classed as a
medium-risk investment. The majority of the underlying assets (more than 48%) are in the technology
industry. This industry is growing at an accelerated rate, resulting in faster growth of investments.

Performance is based on exposure to the following sectors:

Information Technology

Communication

Consumer Discretionary

Health Care

Consumer Staples

Industrials

Utilities

Cash and/or Derivatives.

The top 10 holdings for this ETF are:

Apple Inc

Microsoft Corp

Amazon Com Inc

Tesla Inc

Alphabet Inc Class C

Alphabet Inc Class A

Facebook Class A Inc

Nvidia Corp

PayPal Holdings Inc

Adobe Inc
3. iShares MSCI Min Vol USA Index ETF (XMU)

This is an ETF for conservative investors. The stocks in this ETF are known to avoid volatility swings and
perform better during recessions. XMU follows minimum volatility strategies. This aims to smooth out
any ups and downs in the market. This can reduce your losses if the market takes a downward turn,
while still allowing you to make gains during an upward turn. Following minimum volatility strategies can
result in long-term investments being more successful. XMU tracks an index measuring the performance
of low volatility U.S. equities includes in the MSCI USA Index. Although there are different risks
associated with these ETFs, they all have the potential for exceptional gains over the long run. XMU
replicates the performance of the net of expenses of the MSCI USA Minimum Volatility Index (USD). It
aims to give long-term capital growth with a low to medium risk level. Similar to XQQ, XMU also has
most of its underlying assets in the technology industry. However, this is less heavily weighted. XMU has
25.38% of its assets in the tech industry, compared to 48.65% for XQQ. This results in a more balanced
portfolio.

The top 10 holdings for XMU are:

Microsoft Corp

Accenture PLC Class A

Eli Lilly

Waste Management Inc

Kroger

Adobe Inc

Regeneron Pharmaceuticals Inc

Visa Inc Class A

Gilead Sciences Inc

Republic Services Inc

Few funds have as good of a reputation as iShares Core SP 500 Index ETF. Also known by the ticker
symbol XUS, this fund represents the world’s most renowned index, the SP 500. The SP 500 index is
made up of the 500 largest publicly traded companies in the US. The growth of the SP 500 is determined
by the progress of the following 11 market sectors:

Industrials

Communication Services

Energy

Technology

Financials

Health Care

Public Utilities

Real Estate

Consumer Staples

Consumer Discretionary

Materials

In other words, XUS represents the majority of the US market. The Canadian market is only dominated
by financials, industrials, real estate, materials, and oil ETFs (see what the best Canadian energy ETFs
are). For this reason, many analysts believe the US market to be safer than Canada. The robust US
economy makes up for roughly a quarter of the world’s GDP and features every business type. Some of
the fund’s largest positions include Microsoft, Apple, Amazon, Facebook, Berkshire Hathaway, Google
(Alphabet), Johnson Johnson, JPMorgan Chase, and Visa. This diverse list includes companies deeply
woven into society all around the world. As they continue to grow, so will products like the iShares Core
SP 500 Index ETF. You might be concerned about a recession or periods of instability in the market. From
the Great Depression to the 2008 housing crisis, the US market has always regained footing. In fact, after
every recession, the US stock market prices have risen to new all-time highs. As long as you hold the ETFs
patiently, you can expect exceptional gains in the long term. XUS has nearly tripled in the past ten years.
Its index has returned an annual average of 9% since its creation. Such gains are much higher than what
you can find with even the best Canadian equity and bond products. Like other assets traded on the
stock market, XUS pays a dividend to its owners. It has been consistent in paying between 1% and 2% in
annual dividends. After years of holding the security, these payments add up to significant sums. As of
August 17, 2020, one share of XUS is worth $55.35 on the Toronto Stock Exchange.
5. iShares NASDAQ 100 Index ETF (XQQ)

iShares NASDAQ 100 Index ETF (XQQ) is another fund recognized as a staple in many of the best
Canadian portfolios. Instead of focusing on the entire market, XQQ tracks 107 companies listed on the
NASDAQ. The majority of these stocks are technology companies. Because XQQ puts a large emphasis on
tech, it is riskier than the SP 500. Nonetheless, the index tracked by this fund has recovered from every
market crash it has seen. Although relatively risky, XQQ does offer more potential for growth. Technology
has been advancing with extraordinary momentum. The following list shows the largest positions
currently in the XQQ:

Apple

Microsoft

Amazon

Google (Alphabet)

Intel

Cisco

Comcast

PepsiCo

These 8 companies make up roughly half of the ETF’s value. In other words, XQQ’s value is dependent on
their performance. XQQ does not contain any stocks related to the financial industry. This fact attracts
many investors. It is the reason why XQQ barely lost ground during the 2008 housing crisis. Fortunately,
most of the companies listed above have proven to succeed for many decades. Even during the COVID-
19 pandemic, XQQ has shown exceptional performance. Since this ETF’s creation, it has grown an
average of 18% per year. In years to come, technology will continue to be a critical factor in your
everyday life. In the next few years, the world will advance towards reliance on artificial intelligence (AI)
and 5G cell service. Companies on the XQQ are positioned to supply society with these in-demand
services. As a result, XQQ will most probably remain one of the strongest funds on the market.
6. iShares MSCI Min Vol USA Index ETF (XMU)

The Ishares MSCI Min Vol USA Index ETF is designed for defensive investors. It is less risky than XUS and
XQQ. Most of the holdings in XMU are value stocks. Unlike the growth stocks on XQQ, value stocks
usually grow at a more stable and predictable pace (see also how to find undervalued stocks). By
definition, growth stocks rise faster than their businesses grow. Consequently, many growth stocks
eventually become overvalued. In contrast, value stocks rise at a rate closer to their business’ growth.
While overvalued growth stocks generally plummet in times of market turmoil, value stocks do a better
job of holding their ground. The stocks in the Ishares MSCI Min Vol USA Index ETF are not traded as
frequently as popular stocks. Thus, XMU is not a volatile investment. When the market is performing
well, the stocks in XMU will not rise as much as highly traded stocks. But, when the market goes down,
their drop will not be nearly as steep. Unlike XQQ, XMU distributes weight evenly across its 200 holdings.
No stock makes up more than 2% of the fund’s value. Again, this reduces unwanted drastic price shifts.
Since its creation, XMU has returned annual gains of around 16% while paying a yearly dividend of
1.65%. The Ishares MSCI Min Vol USA Index ETF has performed better during selloffs and recessions. In
fact, during the market selloff caused by COVID-19, XMU did not drop as much as broad market indexes.
As of August 17, 2020, one share of XMU costs $57.36 on the Toronto Stock Exchange.

Buy ETFs in CAD or USD?

Even though XUS, XMU, and XHU (discussed below) shares are priced with Canadian Dollars, these funds
still bet on the US dollar. The funds are valued in US dollars and later converted to Canadian before
listing on the market. On the other hand, XQQ uses a different strategy called currency hedging.
Currency Hedging is a technique that gives investors exposure to the Canadian dollar. XQQ tracks the
daily movement of the QQQ and the Canadian dollar at the same time. If QQQ’s value does not change,
but the Canadian dollar rises against the American dollar, XQQ will increase. If QQQ doesn’t move but
the Canadian dollar lowers against the American, XQQ will decrease in value. Over the past ten years, the
US dollar has grown stronger in comparison to the Canadian dollar. As of August 8, 2020, one USD buys
you 1.32 CAD. If you believe the US dollar will continue to outperform the Canadian, buy XUS, XMU,
XHU, or their US versions. In this case, buying QQQ would be better than buying XQQ. If you believe the
Canadian dollar will outperform the USD, buy Canadian hedged ETFs. The Canadian hedged versions of
the recommended ETFs have the following tickers:

Ishares Core SP 500 Index (XUS) = XSP

Ishares MSCI Min Vol USA Index ETF (XMU) = XMS

Ishares U.S. High Dividend Equity Index ETF (XHU) = XHD

Currency Hedging does have a negative impact on your ETF’s value. After all, it does cost fund managers
to hedge currencies. These costs appear in the form of larger management fees that take away from your
fund’s gains. Unless you believe the CAD will significantly outperform the USD, it is a better idea to buy
American.
What are the Best ETFs for dividends?

Ishares U.S. High Dividend Equity Index ETF (XHU)

The iShares US High Dividend Equity Index ETF is favoured by defensive investors. Its safety comes from
the fact that it is made up of stocks that pay high dividends. By owning XHU you will consistently receive
monthly payments. These payments can come in cash or be reinvested in the ETF. This is one of the best
ETFs dividend paying choice for Canadians. Large dividend payments are usually a sign that a company
has sturdy financials and increasing net profits. For this reason, many of the same value stocks on XMU
are also found on XHU. Firms such as Verizon, Coca-Cola, and Pepsico make up top holdings in both
funds. Recently, the iShares U.S. High Dividend Equity Index ETF has performed exceptionally well. Since
its creation, its price has risen an average of 5.5% annually. But, its price increases are not what makes it
a desirable asset. This ETF has historically paid annual dividends of over 3%. In the past 12 months, XHU
has paid 3.4% of share prices in the form of dividends (over .28% monthly on average). Keep in mind that
as share prices increase, you will receive more money in dividends. The 75 companies followed by this
index are regularly monitored by managers. The managers make sure these companies’ dividend yields
are constant and dependable. Even while the market tanked due to COVID-19, dividend payments barely
budged. For this reason, dividend investing is recognized to be one of the safest ways to put money in
the market. As of August 18, 2020, one share of XHU is worth $28.08. It can be bought on the New York
Stock Exchange with the ticker symbol HDV.

SPDR Portfolio SP 500 High Dividend ETF (SPYD)

The SPDR Portfolio SP 500 High Dividend ETF is one of the best options for investors seeking fixed
payments. This ETF tracks 80 companies in the SP 500 that yield high dividends. Like all other companies
in the SP 500, the stocks tracked by SPYD are blue chips or large caps. Most have been around for a long
time and have survived multiple market recessions. Although not every stock tracked by SPYD is a value
stock, it is still a safe investment in the long run, just like XUS/SPY. Although SPYD does not screen
companies for consistent yields, most companies followed by the index ETF contain large amounts of
cash reserves. Due to these cash reserves, even if the market is crashing, these companies will most
likely be able to pay their high dividends. In the past ten years, SPYD returned an annual rate of 4%. In
the last twelve months, SPYD has returned an average dividend of 6.4%. This dividend has also raised
almost 5% annually, for the past three years. As of September 24, 2020, one share of SPYD costs $26.58
(US dollars). This ETF can only be bought on the New York Stock Exchange. This best ETFs US product is
available in Canada. Ask your Canadian-based financial advisor to show you how. It has tax implications,
so also consult with your accountant. iShares U.S. High Dividend Equity Index ETF and SPDR Portfolio SP
500 High Dividend ETF contain many of the same stocks. Unless you have adopted an extremely
conservative investment strategy, there is not much use in owning both ETFs at the same time. XHU and
SPDR already both offer exceptional diversity. It is recommended to buy these ETFs with a Registered
Retirement Savings Plan account to avoid Canadian taxes on dividends
Reinvesting Dividends

XUS, XQQ, XMU, XHU and SPYD all offer dividend reinvestment plans (DRIP). If you want, your dividends
will be automatically put towards buying new shares in the same ETF. The dividends you receive may not
be enough to buy an entire share of an ETF. Instead, it would buy a fraction of the fund. For instance,
pretend you own one share of a $100 ETF which is going to pay a 2% dividend. If you choose to reinvest,
you will own 1.02 shares of the ETF after it yields its dividend. While dividends may seem to be very
small payments, they do have a big impact on your returns in the long run. For example, take the history
of the SP 500 (which is tracked by XUS). If you started investing in June 2010, your return on the
investment would be 190% after ten years. If you chose to reinvest your dividends for those ten years,
your final return would be 250%. It is strongly advised to reinvest your dividends, especially if you plan
on holding your ETF for a while. The best ETFs with dividends are also some of the best ETFs in Canada.

How to Choose the Best ETF for Your Needs

Before investing in an ETF you will want to identify two facets of your life. One: how long you are willing
to invest. Two: your risk tolerance. What ETFs best suit you, also depends on whether you have faith in
say, the S P TSX 60 and have your eye on the FTSE Canada All Cap for example, or just care about the best
ETFs 2020, regardless of the product you invest in. Most ETFs that capture a broad enough section of the
market will be profitable in the long run (including XUS, XQQ, XMU, XHU, and SPYD). However, of course,
not all investors can store away their money for so long. If you know you will need to take your money
out of the market in the next year, you will be safest investing in XMU. When the economy enters a
recessionary period, it usually takes the stock market a few years to recover. If you only wanted to invest
for one year, you might be disappointed if the market declines. XMU, however, will likely not lose as
much ground as others during a crash. If you can save for the long run, invest in XUS or XQQ. Of the latter
two, XQQ has larger growth potential, but it also comes with more risk. If you are simply looking for a
fixed, predictable income, invest in either XHU or SPYD. As well, if you strongly believe one specific
sector of the market will experience accelerated growth, you can find an ETF that tracks that side of the
market. Keep in mind, the best ETFs in Canada for you may focus on the s p tsx 60, Canada all cap index,
or even the best ETFs emerging markets. While the best low fee mutual fund or buying and selling
options might appeal more to your neighbour. There are many “best ETFS” out there, including the
VanguardFTSE Canada All CapIndex ETF. In fact, we really like Vanguard Canada All Cap for their low fee
and TSX 60 Index stocks. So, the best ETFs for 2020 and beyond are a matter of personal preference. We
are providing you with a short list of the best ETFs on TSX for ETFs.

The Bottom Line

Investing in index ETFs is a great way to gain exposure to many stocks at the same time. The diverse
nature of index ETFs minimizes risk over time. When a stock starts performing poorly, investors panic
because there is the possibility that the stock does not return to its previous price. On the other hand,
when a market index ETF performs badly, investors do not have much to worry about. After every crash,
the market as a whole, and thus index ETFs, eventually regain footing. Despite their diverse nature, ETFs
hold much of the same properties as stocks. They can be traded frequently throughout the day, and they
can yield dividends. For the average Canadian, investing in the US market can be a great way to grow
your portfolio’s value. Most companies in these indexes do business in Canada. So, if you have faith in
the Canadian economy, you have faith in these ETFs as well.