5 Best Canadian ETFs to Pair with XEQT (Portfolio Optimization Guide)

Already own XEQT and wondering what else to add to your portfolio? You’re not alone. Many Canadian investors reach a point where they consider complementing their core XEQT holdings with additional investments.

The truth is: most people should just keep buying XEQT. But there are legitimate reasons to add specific ETFs to your portfolio—whether for cash reserves, bond exposure, real estate, or dividend income.

In this guide, I’ll cover the 5 best Canadian ETFs that can complement XEQT, when each makes sense, and why the simplest approach is usually the best.

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Before You Add Anything: Do You Really Need More?

Let me be direct: XEQT is already a complete portfolio.

With XEQT, you own:

For long-term investors with a 10+ year time horizon, XEQT alone is genuinely all you need. Adding more investments introduces complexity, requires manual rebalancing, and often doesn’t improve returns.

⚠️ The Complexity Trap

Every ETF you add is another position to track, rebalance, and manage. Many investors who add "just one more ETF" end up with a complicated portfolio that underperforms a simple XEQT-only strategy.

Ask yourself: Is the potential benefit worth the added complexity?

That said, there are legitimate reasons to complement XEQT. Let’s explore when and why each of these 5 ETFs makes sense.

The 5 Best ETFs to Pair with XEQT

1. CASH.TO (Purpose High Interest Savings ETF)

Best for: Emergency fund parking, short-term savings within your brokerage

Ticker: CASH.TO
Provider: Purpose Investments
MER: 0.00% (fee embedded in rate)
Type: High-Interest Savings ETF
Current Yield: ~4.5-5% (varies with rates)

What It Does:

CASH.TO holds your money in high-interest savings accounts at Canadian banks. It's not an investment in the traditional sense—it's a cash management tool that lets you earn competitive interest rates on idle cash within your brokerage account.

Why Pair with XEQT:

  • Keep your emergency fund in the same account as your investments
  • Park cash between lump-sum investments
  • Avoid transferring money back to a bank savings account
  • Earn better rates than most traditional savings accounts

💡 Perfect Use Case

You have $10,000 in emergency savings sitting in a chequing account earning 0.01%. Move it to CASH.TO in your TFSA and earn 4-5% while keeping it accessible. Your emergency fund grows alongside your XEQT investments.

✅ Pros

  • Highly liquid—sell anytime
  • CDIC-eligible deposits at banks
  • Competitive rates vs. bank savings
  • Simplifies account management
  • No volatility—principal is stable

❌ Cons

  • Interest rates fluctuate with BoC rate
  • Returns won't beat inflation long-term
  • Not a growth investment
  • Takes up TFSA/RRSP contribution room

The Verdict: CASH.TO is excellent for emergency funds or short-term savings—but it’s not an investment that grows. Don’t confuse parking cash with building wealth.

2. ZAG (BMO Aggregate Bond Index ETF)

Best for: Adding bond exposure to reduce portfolio volatility

Ticker: ZAG
Provider: BMO Global Asset Management
MER: 0.09%
Type: Broad Canadian Bond ETF
Holdings: 1,500+ Canadian bonds
Current Yield: ~3.5-4%

What It Does:

ZAG tracks the Canadian investment-grade bond market, including government bonds, provincial bonds, and corporate bonds. It provides fixed income exposure that typically moves differently than stocks—when stocks drop, bonds often hold steady or rise.

Why Pair with XEQT:

  • Reduce overall portfolio volatility
  • Create a custom asset allocation (e.g., 80% XEQT / 20% ZAG)
  • Add stability for investors nearing retirement
  • Sleep better during market crashes

💡 Perfect Use Case

You're 50 years old with a 10-15 year timeline to retirement. Instead of switching from XEQT to XGRO (80/20), you add ZAG to create your own 85/15 or 75/25 split—giving you more control over your exact bond allocation.

✅ Pros

  • Ultra-low 0.09% MER
  • Reduces portfolio volatility
  • Provides income through distributions
  • Custom asset allocation flexibility
  • Diversified across bond types

❌ Cons

  • Lower long-term returns than equities
  • Interest rate sensitivity (rising rates hurt bonds)
  • Requires manual rebalancing
  • XGRO/XBAL already include bonds

Alternative: VAB (Vanguard Canadian Aggregate Bond Index ETF) at 0.09% MER is virtually identical.

The Verdict: ZAG makes sense if you specifically need to reduce volatility or want precise control over your stock/bond ratio. But honestly? Just switching to XGRO or XBAL is simpler.

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3. XRE (iShares S&P/TSX Capped REIT Index ETF)

Best for: Adding dedicated Canadian real estate exposure

Ticker: XRE
Provider: BlackRock (iShares)
MER: 0.61%
Type: Canadian REIT ETF
Holdings: 19 Canadian REITs
Current Yield: ~4.5-5%

What It Does:

XRE invests in Canadian Real Estate Investment Trusts (REITs)—companies that own income-producing properties like apartment buildings, shopping malls, office towers, and industrial warehouses. REITs are required to distribute most of their income, resulting in high dividend yields.

Why Pair with XEQT:

  • XEQT only has ~3% real estate exposure
  • REITs can provide inflation protection
  • Higher dividend income than broad market
  • Real estate often moves differently than stocks

💡 Perfect Use Case

You're a renter who wants real estate exposure without buying property. Adding 5-10% XRE to your portfolio lets you benefit from Canadian real estate markets without a mortgage or landlord responsibilities.

✅ Pros

  • High dividend yield (~4.5-5%)
  • Real estate diversification
  • Potential inflation hedge
  • Passive income stream

❌ Cons

  • Higher MER (0.61%) than broad market ETFs
  • Concentrated in 19 holdings only
  • Interest rate sensitive
  • REIT dividends taxed as income (not eligible dividends)
  • Already have some REIT exposure in XEQT

The Verdict: XRE can make sense for investors specifically wanting more real estate exposure, but the 0.61% MER is steep compared to XEQT’s 0.20%. Consider whether the extra exposure is worth the cost.

4. ZDV (BMO Canadian Dividend ETF)

Best for: Canadian dividend income focus

Ticker: ZDV
Provider: BMO Global Asset Management
MER: 0.39%
Type: Canadian Dividend ETF
Holdings: ~50 Canadian dividend stocks
Current Yield: ~4-5%

What It Does:

ZDV focuses on high-yielding Canadian dividend stocks, including banks, utilities, telecoms, and pipelines. It's designed for investors seeking regular income from Canadian companies known for consistent dividend payments.

Why Pair with XEQT:

  • Boost Canadian dividend income
  • Overweight stable, dividend-paying sectors
  • Create cash flow from your portfolio
  • Eligible dividends get preferential tax treatment

💡 Perfect Use Case

You're approaching retirement and want to transition from growth to income. Adding ZDV creates a dividend stream while XEQT continues providing growth—a barbell approach to retirement income.

✅ Pros

  • High dividend yield (~4-5%)
  • Canadian eligible dividends (tax-efficient)
  • Exposure to stable sectors
  • Regular income payments

❌ Cons

  • Higher MER (0.39%) than XEQT
  • Heavy concentration in financials/energy
  • Lower growth potential than broad market
  • Overlaps significantly with XEQT's Canadian holdings

Alternative: VDY (Vanguard FTSE Canadian High Dividend Yield Index ETF) at 0.22% MER offers similar exposure at lower cost.

The Verdict: ZDV can work for income-focused investors, but be aware of significant overlap with XEQT’s Canadian holdings. You’re essentially doubling down on Canadian financials and energy.

5. XBB (iShares Core Canadian Universe Bond Index ETF)

Best for: Alternative bond exposure with lower credit risk

Ticker: XBB
Provider: BlackRock (iShares)
MER: 0.10%
Type: Broad Canadian Bond ETF
Holdings: 1,400+ Canadian bonds
Current Yield: ~3.5-4%

What It Does:

XBB is similar to ZAG—it tracks the broad Canadian bond market. The main difference is the underlying index and slight variations in holdings. Both serve the same purpose: reducing portfolio volatility through fixed income.

Why Pair with XEQT:

  • Add fixed income to an all-equity portfolio
  • Reduce overall portfolio risk
  • Smooth out volatility during market downturns
  • iShares option if you prefer BlackRock products

✅ Pros

  • Low 0.10% MER
  • Broad bond market coverage
  • High credit quality holdings
  • Reduces portfolio volatility

❌ Cons

  • Similar to ZAG—pick one or the other
  • Lower returns than equities long-term
  • Interest rate risk
  • XGRO/XBAL include bonds already

The Verdict: XBB vs. ZAG is like XEQT vs. VEQT—nearly identical performance. Choose based on provider preference.

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Quick Comparison Table

| ETF | Type | MER | Yield | Best For | Overlap with XEQT | |-----|------|-----|-------|----------|-------------------| | **CASH.TO** | Cash/Savings | 0.00% | ~4.5% | Emergency fund | None | | **ZAG** | Bonds | 0.09% | ~3.5% | Reducing volatility | None | | **XRE** | REITs | 0.61% | ~4.5% | Real estate exposure | Low (~3%) | | **ZDV** | Dividends | 0.39% | ~4.5% | Canadian income | High (~25%) | | **XBB** | Bonds | 0.10% | ~3.5% | Reducing volatility | None |

Sample Portfolio Allocations

Here are some example portfolios combining XEQT with complementary ETFs:

The Conservative Builder

The Emergency Fund Optimizer

The Income Hybrid

The Real Estate Tilter

🎯 The Core Message: Most People Should Just Buy XEQT

After all this analysis, here's the honest truth: adding ETFs to XEQT rarely improves outcomes for long-term investors. The complexity cost—tracking multiple positions, rebalancing, second-guessing allocations—often outweighs any marginal benefit.

XEQT gives you 9,000+ stocks across the globe, automatic rebalancing, and rock-bottom fees. That's a complete investment strategy in one ticker.

When Adding ETFs Actually Makes Sense

Despite recommending simplicity, there are legitimate scenarios where complementing XEQT works:

✅ Add CASH.TO if:

✅ Add ZAG/XBB if:

✅ Add XRE if:

✅ Add ZDV if:

What NOT to Do

🚫 Common Mistakes When Adding to XEQT

  • Adding more equity ETFs — XEQT already owns the world. Don't add VFV, QQQ, or sector funds thinking you're "diversifying."
  • Chasing performance — Last year's hot sector probably won't be next year's winner.
  • Over-complicating with 10+ holdings — You're not a pension fund. Keep it simple.
  • Adding international ETFs — XEQT already has 45% US and 30% international exposure.
  • Frequent trading — Every trade is a decision point where you can make mistakes.

The Bottom Line

XEQT is already a world-class, diversified portfolio in a single ETF. For most Canadian investors—especially those with 10+ year time horizons—adding more complexity doesn’t improve outcomes.

If you have a specific need (cash reserves, bond allocation, real estate tilt, dividend income), the ETFs in this guide can complement XEQT effectively. But before adding anything, honestly ask yourself: “Will this actually improve my long-term results, or am I just tinkering?”

The investors who build the most wealth are often those who:

  1. Pick a simple strategy (like buying XEQT)
  2. Contribute consistently
  3. Ignore the noise
  4. Stay the course for decades

That’s the real secret. No fancy ETF combinations required.

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Frequently Asked Questions

Should I hold XEQT and VEQT together?

No. They’re essentially the same product from different providers. Holding both creates unnecessary overlap and complexity without any diversification benefit.

Can I add US ETFs like VTI or QQQ to XEQT?

Not recommended. XEQT already has ~45% US exposure. Adding VTI or QQQ means you’re overweighting the US market and defeating XEQT’s balanced global allocation.

How often should I rebalance if I add bonds?

If you add ZAG or XBB, rebalance annually or when your allocation drifts more than 5% from target. Many investors rebalance on their birthday or tax season.

Is CASH.TO better than a high-interest savings account?

For money already in your brokerage, yes—it’s more convenient and rates are competitive. But it does use TFSA/RRSP room, which has opportunity cost for long-term growth.

What about adding gold or crypto ETFs?

These are speculative additions that don’t align with the “just buy XEQT” philosophy. If you must, keep them under 5% of your portfolio and understand the risks.

Disclosure: This post contains referral links. I may receive compensation if you sign up through these links, but this doesn’t affect my analysis. The core message remains: most investors should just buy XEQT and keep it simple.