Make Your TFSA Unshakeable With This Bulletproof Investment

I’m a huge fan of the BMO Low Volatility Canadian Equity ETF (TSX:ZLB) and a core TFSA holding. Here’s why.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

When it comes to your TFSA, please don’t take unnecessary risks by being greedy with cyclical stocks at a time when others are also greedy. Losses realized within a TFSA are substantially more painful to bear, as you’ll be unable to use losses to offset present or future capital gains. I believe that a TFSA should be balanced with a risk-parity strategy in the late stages of a bull market so that it doesn’t get obliterated come the next market crash.

Think of the funds within your TFSA as scarce resources. While you may have additional cash on the sidelines, you’ll only be allowed to contribute $5,500 per year, and if it goes up in smoke, you’ll need to wait until the next calendar year to get that $5,500 back. Although $5,500 today may not seem like a “make or break” amount, I can guarantee you that the last year’s $5,500 TFSA contribution is worth a heck of a lot more in the future after the effects of tax-free compounding have had the chance to work their magic.

It’s quite profound just how powerful the TFSA is as a wealth-creating vehicle for everyday Canadians. When used correctly, TFSAs can propel today’s average investors to a very wealthy retirement. Tax-free compounding can make you a TFSA millionaire a lot sooner than you’d think, and you don’t need to load up on speculative securities to hit this sought-after milestone. You’ll need patience, discipline and a solid strategy, however, which is arguably just as hard if not harder for today’s investor who’s continuously pressured to take action when in reality, no action may be necessary on their part.

Instead of speculating on questionable get rich quick investment instruments, consider buying a one-stop shop investment like the BMO Low Volatility Canadian Equity ETF (TSX:ZLB), an ETF that’s constructed from some of the most stable names on the TSX. After you’ve bought it, just forget you even own it, as it’s one of the smoothest rides that any investor could ask for, and come the next crash, it’ll fall at a much smaller magnitude than your average stock.

While you could indeed copy the holdings within the ETF to save yourself the 0.4% management expense ratio (MER), I’d argue that for most investors, it may be better to just pick up the ZLB given the sum of commissions you’d pay would likely exceed costs you’d pay for the ZLB over the longer-term. A 0.4% MER is a pretty decent value versus when compared side-by-side with a 3% MER actively managed low-volatility mutual fund!

The ZLB owns an equal weighting of a handful of 100% Canadian blue-chip stocks. The ETF is very well-diversified with 23.6% 15.1%, 13.6%, 12.8%, and 11.1% of the portfolio allocated to financials, utilities, consumer staples, consumer discretionary, and real estate, respectively. And the best part is that materials and energy only account for 4.9% of overall holdings in spite of the TSX being heavily weighted toward these sectors.

The ZLB’s largest constituent is Fairfax Financial Holdings, which is the epitome of an investment that values downside protection above all else. Going down the list, I see some very attractive low-volatility names with strong competitive edges within their respective industries.

Foolish takeaway

I like the components that comprise the ZLB very much. The ETF as a whole looks like it could weather the next economic downturn very well, and best of all, the ETF actually can outperform the TSX, even if the bull were to continue running!

The 2.61% distribution yield is icing on the cake, so I’d strongly urge TFSA investors to hide out in this bulletproof investment and enjoy the smooth ride up or the padded ride down, depending on where the markets are headed next. With the ZLB, it really won’t matter because you’re getting the best of both worlds!

I’m considering loading up on the ZLB for my TFSA at some point over the next few weeks. I hope you’ll join me.

Stay hungry. Stay Foolish.

Should you invest $1,000 in NorthWest Healthcare Properties right now?

Before you buy stock in NorthWest Healthcare Properties, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and NorthWest Healthcare Properties wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. Fairfax Financial Holdings is a recommendation of Stock Advisor Canada.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

1 Practically Perfect Canadian Stock Down 24% to Buy Now and Hold for Life!

CNR stock is a top Canadian stock for investors, especially with shares down on the TSX today.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

The Best Canadian Stocks to Buy Right Away With $30,000

If you have $30,000 you're willing to invest, these are some of the first Canadian stocks to consider on your…

Read more »

rail train
Dividend Stocks

What to Know About Canadian Pacific Railway Stock for 2025

CP stock has now gone through a major merger, so what do investors have to look forward to?

Read more »

ways to boost income
Dividend Stocks

Top Canadian Value Stocks I’d Buy for Dividend Growth and Appreciation

If you are looking for income and capital appreciation, here are three Canadian value stocks for a great total return…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Canadian Stock to Buy With $2,000 Right Now

The company’s powerful combination of growth, income, and value, positions it well to deliver solid returns, making it a smart…

Read more »

Transparent umbrella under heavy rain against water drops splash background. Rainy weather concept.
Dividend Stocks

This 10.6 Percent Dividend Stock Pays Cash Every Single Month

Are you looking to invest for a rainy day? This 10.6% dividend stock pays cash every month, irrespective of the…

Read more »

A worker gives a business presentation.
Dividend Stocks

Market Dip: Opportunity or Risk This April?

This market dip might have investors worried, but should they be excited instead?

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Why I’d Add This Top TSX Dividend Stock to My TFSA During the Current Dip

The market is full of volatility right now. Fortunately, this top TSX dividend trades at a discount and pays a…

Read more »