When NOT to Buy XEQT: 7 Situations Where a Different Strategy Makes More Sense

Look, I love XEQT. I write an entire blog about it. I own it. I buy more of it every month. But I’d be doing you a disservice if I pretended it’s perfect for every single person in every single situation.

The truth is, there are real scenarios where buying XEQT is the wrong move — where it could cost you money, stress you out beyond what’s reasonable, or expose you to risks that don’t match your situation. And I think being honest about that actually matters more than cheerleading.

If you’ve ever asked yourself “should I really buy XEQT?” or “is XEQT right for me?”, this guide is going to give you a straight answer. I’ll walk you through seven specific situations where XEQT genuinely isn’t the best choice, what to do instead in each case, and why most of these situations are temporary.

If you want the full breakdown of what XEQT actually is and why it works so well for most people, start with my What is XEQT guide. But right now, let’s talk about the exceptions.

A Quick Reminder: When XEQT IS Great

Before I start poking holes, let me set the context. XEQT is genuinely excellent when:

• You have a 10+ year time horizon — Long-term investors have historically been rewarded by staying fully invested in global equities.
• You want a simple, hands-off portfolio — One ETF, 12,000+ stocks across 40+ countries, automatic rebalancing. You can’t get simpler than that.
• You’re investing in a TFSA or RRSP — Tax-sheltered accounts amplify XEQT’s growth because you’re not losing returns to taxes along the way.
• You’re okay with short-term drops for long-term gains — If you can watch your portfolio drop 20-30% and not panic sell, XEQT rewards that patience over time.

For the full beginner breakdown, read my XEQT for beginners guide. I’ve also written honestly about every downside of XEQT — this page goes deeper into who should consider something different entirely.

Now, here are the seven situations where I’d tell you to hold off.

Situation 1: You Need the Money Within 1-3 Years

This is the most common reason XEQT is wrong for someone, and it’s the one I see people get burned by the most.

XEQT is 100% equities. That means it can — and will — experience significant drops. A 30% decline in a single year is not unusual. During the 2008 financial crisis, a global equity portfolio similar to XEQT’s holdings dropped roughly 45%. During COVID in 2020, it dropped about 30% in a matter of weeks.

If you’re saving for a down payment you need in 18 months, or you’re planning a wedding next year, or you’ve got tuition due in two years, XEQT is the wrong vehicle. Here’s why:

Imagine you invest $50,000 for a down payment. The market drops 30%. You now have $35,000. Your home purchase timeline hasn’t changed — the market just took $15,000 from you, and you don’t have five years to wait for recovery.

The math that matters: Over any 1-3 year period, stock markets are essentially a coin flip. Historically, global equities have had negative returns in roughly 1 out of every 3-4 calendar years. Over 10+ years, they’ve been positive the vast majority of the time. Time is what turns XEQT from a gamble into a strategy.

What to do instead

• High-interest savings accounts (HISAs) — Canadian HISAs through online banks offer competitive rates with zero risk to your principal. Your money is there when you need it.
• GIC ladders — If you know exactly when you’ll need the money, a 1-year or 2-year GIC locks in a guaranteed rate. No surprises. For a deeper dive on how these compare, see my XEQT vs GICs breakdown.
• Cash ETFs like CASH.TO — These hold short-term deposits and pay interest monthly. They won’t make you rich, but they won’t lose 30% either.

The rule I follow: Any money I need within 3 years goes into a HISA or GIC. Period. No exceptions. The potential upside from XEQT over 1-3 years simply doesn’t justify the downside risk.

Situation 2: You’re Already Retired and Need Income NOW

XEQT is built for growth. It’s designed to compound wealth over decades. That’s a fantastic strategy when you’re 30 and won’t touch the money until you’re 65. It’s a much less fantastic strategy when you’re 65 and need to start withdrawing next month.

Here’s the problem: XEQT pays a relatively modest distribution — roughly 2% annually. If you have a $500,000 portfolio and need $40,000 a year to live on, that 2% yield gives you $10,000. The other $30,000 has to come from selling shares.

Selling shares in a rising market is fine. Selling shares in a falling market is devastating. This is called sequence of returns risk, and it’s the number one portfolio killer in retirement. If the market drops 30% in your first year of retirement and you’re forced to sell XEQT shares to cover expenses, you’re locking in losses and shrinking the base that needs to recover.

A retiree who held 100% XEQT through the 2008 crisis while drawing down 4% per year would have been in serious trouble. Someone with a balanced portfolio would have fared much better.

What to do instead

• XBAL — iShares’ balanced ETF holds 60% stocks and 40% bonds. Less growth, but significantly less volatility. The bond component provides a buffer you can draw from during stock market downturns.
• XINC — iShares’ conservative portfolio holds roughly 20% stocks and 80% bonds/fixed income. This is for retirees who prioritize capital preservation above all else.
• A glide path approach — Gradually shift from XEQT toward XBAL or XINC as you approach and enter retirement. I wrote a full guide on the XEQT glide path strategy.
• The bucket strategy — Keep 2-3 years of expenses in a HISA or GIC (your “spending bucket”), a few more years in XBAL (your “bridge bucket”), and the rest in XEQT for long-term growth. This way, you never have to sell XEQT during a crash.

XEQT can still play a role in a retirement portfolio — it just shouldn’t be the whole thing. If you’re 10+ years from retirement, you have time. If you’re 2-3 years out, start planning your transition now.

Situation 3: You Can’t Stomach a 30%+ Drop Without Selling

This one is uncomfortable to talk about, but it’s critical. XEQT will, at some point during your investing lifetime, drop 30% or more. It might happen next year. It might not happen for a decade. But it will happen.

The question isn’t whether you’ll experience a crash. It’s what you’ll do when it happens.

If the honest answer is “I’d panic sell,” then XEQT is the wrong choice for you right now. Not because there’s anything wrong with XEQT — but because selling at the bottom is the single most destructive thing you can do to your long-term returns. An investor who bought XEQT in January 2020 and held through COVID was positive by August. An investor who panic sold in March 2020 locked in a 30% loss.

I want to be clear: this isn’t a character flaw. Risk tolerance is partly emotional, partly experiential, and partly about your financial situation. Someone with $500,000 in XEQT watching it drop to $350,000 feels very different than someone with $5,000 watching it drop to $3,500. Both are 30% drops, but one threatens to derail retirement plans.

How to honestly assess your risk tolerance

Ask yourself these questions:

• If my portfolio dropped 30% tomorrow, would I log into my brokerage and sell?
• Have I ever sold an investment during a downturn?
• Does checking my portfolio during a red day make me physically anxious?
• Would a 30% drop affect my ability to sleep or my daily stress levels?

If you answered yes to more than one, a 100% equity portfolio might not be right for you — at least not yet.

What to do instead

• XGRO — 80% stocks, 20% bonds. Still growth-oriented, but the 20% bond allocation dampens the worst of the drawdowns. During a 30% stock market crash, XGRO might drop 24% instead. That difference matters psychologically.
• XBAL — 60% stocks, 40% bonds. Historically, this has been the “sleep at night” allocation. Significantly lower volatility while still capturing meaningful long-term growth.
• Start small with XEQT — Sometimes the best way to build risk tolerance is to experience a downturn with a small amount of money. Invest $1,000 in XEQT, watch it go through a rough patch, and see how you feel. Once you’ve survived a dip and watched the recovery, you might be ready for more.

There’s no shame in choosing XGRO or XBAL. A portfolio you can hold through a crash beats a portfolio you sell during one, every single time. If you want to understand what a worst-case scenario actually looks like, read my guide on whether you can lose all your money with XEQT.

Situation 4: You Have High-Interest Debt

If you’re carrying credit card debt at 19.99%, a store card at 29.99%, or — worst of all — payday loan debt, buying XEQT is mathematically the wrong decision.

Here’s why: XEQT’s long-term expected return is roughly 8-10% per year. Credit card interest is 20%+. Every dollar you invest in XEQT instead of paying off credit card debt is effectively losing you 10-12% per year. You’re earning an expected 8-10% while paying a guaranteed 20%.

And here’s the part people miss: paying off debt is a guaranteed, risk-free return. If you pay off a credit card charging 19.99% interest, you just earned a guaranteed 19.99% on that money. XEQT might return 15% next year, or it might return -20%. Your credit card rate never goes negative.

The math that makes it obvious

Let’s say you have $5,000 to either invest or pay off debt:

• Invest in XEQT: Expected return of $400-$500 over one year (8-10%). But could be -$1,000 in a bad year.
• Pay off credit card at 19.99%: Guaranteed savings of ~$1,000 in interest over one year. Risk-free.

The credit card payoff wins in every scenario. It’s not even close.

What to do instead

1. Pay off any debt above 6-7% interest first. This includes credit cards, store cards, payday loans, personal lines of credit, and high-rate car loans.
2. Make minimum payments on low-interest debt (mortgage, student loans, promotional car loans) while aggressively eliminating high-interest debt.
3. Once high-interest debt is gone, redirect every dollar into XEQT.

I’ve written a comprehensive guide on paying off debt vs investing in XEQT that walks through every type of Canadian debt with specific cutoff rates. If you’re carrying debt, start there.

The one caveat: if your employer offers RRSP matching, it might make sense to contribute enough to capture the full match even while paying off debt, since that match is an instant 50-100% return. But beyond that, debt above 6-7% comes first.

Situation 5: You Don’t Have an Emergency Fund Yet

This one is related to Situation 1, but it’s different enough to deserve its own section.

An emergency fund isn’t about optimizing returns. It’s about making sure you never have to sell your investments at the worst possible time. Because life doesn’t care about market cycles. Your car’s transmission doesn’t wait for a bull market to fail. Your landlord doesn’t delay a rent increase because stocks are down.

If you invest all your cash in XEQT and then your car breaks down, you might have to sell XEQT shares to cover the repair. If that happens during a market downturn, you’re selling low — turning a temporary paper loss into a permanent real one.

This is the scenario that destroys people’s relationship with investing. They invest everything, an emergency hits during a bad market, they’re forced to sell at a loss, and they conclude “investing doesn’t work.” It does work. They just didn’t have the foundation in place.

What to do instead

1. Build a starter emergency fund of $1,000-$2,000 in a HISA before you invest anything.
2. Then start investing in XEQT while simultaneously building your emergency fund to 3-6 months of essential expenses.
3. Once you have 3-6 months saved, go all-in on XEQT contributions with your free cash flow.

The exact amount depends on your situation. If you’re a salaried employee with a stable job, 3 months might be enough. If you’re a freelancer or self-employed, I’d lean toward 6 months. If you’re supporting a family on one income, maybe more.

I wrote a full emergency fund vs investing guide with a step-by-step ladder that makes this really simple. The key insight: your emergency fund and your XEQT investments aren’t competing. Your emergency fund is what protects your XEQT investments.

Situation 6: You’re Investing for a Child’s Education in an RESP (and the Child is 14+)

RESPs are one of the best investment vehicles in Canada thanks to the Canada Education Savings Grant (CESG) — the government matches 20% of your contributions up to $500/year. That’s free money. But the investment you hold inside the RESP matters, and it depends heavily on when the child will need the funds.

If your child is 4 years old, XEQT in an RESP is a great choice. You’ve got 14 years until they start post-secondary. That’s plenty of time to ride out market volatility and benefit from long-term equity growth.

But if your child is 15 or 16? You’ve got 2-3 years until they need that money for tuition. And now XEQT’s volatility becomes a genuine problem.

Imagine you have $40,000 in XEQT inside an RESP. Your child starts university next September. A market crash hits and your RESP drops to $28,000. Now you’re either paying out of pocket for the difference or your child is taking on student debt — all because the investment was too aggressive for the timeline.

This is sequence of returns risk applied to education savings, and it’s just as dangerous here as it is in retirement.

What to do instead

• When the child is 0-10: XEQT is perfectly appropriate. You have a long enough time horizon.
• When the child is 11-14: Start transitioning toward XGRO or XBAL. Introduce some bond exposure to reduce volatility.
• When the child is 15+: Move to XBAL or even more conservative options like GICs and HISAs. Capital preservation is the priority.
• Within 1-2 years of withdrawal: Consider moving to a HISA or short-term GICs. You don’t want to be selling during a downturn when tuition is due.

This is essentially a glide path approach, similar to what target-date funds do automatically. The key is to start de-risking early enough that a late crash doesn’t wreck your plan. I’ve written a detailed guide on holding XEQT in an RESP with age-specific recommendations.

Don’t wait until your child is 17 to think about this. If they’re 14 or older and you’re still 100% in XEQT, it’s time to start shifting.

Situation 7: You’re a US Citizen or Green Card Holder Living in Canada

This is the most niche situation on this list, but it affects more people than you’d think. If you’re an American citizen or permanent resident (green card holder) living in Canada, buying XEQT could create a serious tax nightmare.

The issue is something called PFIC rules — Passive Foreign Investment Company regulations. The US government classifies most non-US mutual funds and ETFs as PFICs, and XEQT falls squarely into that category. PFICs are subject to punitive tax treatment that can result in:

• Gains taxed at the highest marginal rate regardless of your actual tax bracket
• An interest charge on top of the tax, calculated as if you’d earned the gains evenly over your holding period
• Complicated annual reporting requirements (Form 8621) that are expensive to prepare
• No preferential treatment for long-term capital gains — everything is taxed as ordinary income at the highest rate

In practice, this means a US person holding XEQT could pay significantly more in taxes than a Canadian holding the exact same fund. The compliance costs alone — between accountants who specialize in cross-border tax and the forms themselves — can run $1,000-$2,000+ per year.

What to do instead

If you’re a US citizen or green card holder in Canada, use US-listed ETFs instead:

• VT (Vanguard Total World Stock ETF) — This is essentially the US-listed equivalent of XEQT. It holds global stocks across developed and emerging markets. Because it’s a US-domiciled fund, it doesn’t trigger PFIC rules.
• VTI + VXUS — If you want to customize your US vs. international allocation, VTI covers the total US market and VXUS covers everything else. Together they achieve roughly what XEQT does, without the PFIC headache.
• Individual US-listed iShares or Vanguard ETFs — Any US-listed ETF avoids the PFIC classification.

There are some trade-offs: you’ll need to deal with currency conversion (though Norbert’s Gambit can help), and US-listed ETFs in a TFSA don’t get any US tax treaty benefits (dividends are subject to a 15% US withholding tax). But even with those drawbacks, you’ll almost certainly come out ahead compared to the PFIC penalties on XEQT.

Important: If you’re a US person and you already hold XEQT, talk to a cross-border tax specialist before selling. There are specific disposal rules for PFICs that you need to navigate carefully.

The Meta-Lesson: Most of These Situations Are Temporary

Here’s the thing I really want you to take away from this guide: for most of these seven situations, the answer isn’t “never buy XEQT.” It’s “not yet.”

• Once your high-interest debt is paid off… XEQT.
• Once your emergency fund is built… XEQT.
• Once your down payment is saved and the house is purchased… XEQT.
• Once you’ve built up your risk tolerance with a smaller allocation… XEQT.
• Once you’re in the accumulation phase with 10+ years to retirement… XEQT.
• Once your child is born and you open that fresh RESP… XEQT.

XEQT is the destination. Some people just need to take a different road to get there. And the fact that you’re reading this guide, thinking carefully about whether XEQT is right for your specific situation, tells me you’re the kind of investor who’s going to do well regardless of which ETF you start with.

The only permanent exception on this list is Situation 7 — US persons in Canada should use US-listed ETFs for as long as they maintain their US tax obligations. Everyone else is likely dealing with a timing issue, not a fundamental mismatch.

Comparison Table: Every Situation at a Glance

Frequently Asked Questions

Is XEQT a bad investment?

No. XEQT is an excellent investment for the right situation. It offers broad global diversification across 12,000+ stocks, automatic rebalancing, and a low management expense ratio — all in a single ETF. The situations I’ve described above aren’t about XEQT being bad. They’re about XEQT being mismatched with specific circumstances. A hammer is a great tool, but you wouldn’t use it to tighten a screw.

Can I hold XEQT and bonds at the same time?

Absolutely. Some investors prefer to hold XEQT alongside a separate bond ETF (like ZAG or XBB) so they can customize their exact stock/bond ratio. This gives you more control than using XBAL or XGRO, though it requires occasional rebalancing. If you want the simplicity of one fund, XGRO and XBAL do this automatically. If you want the control, XEQT + a bond ETF works too.

What if I’m 5 years from retirement — is XEQT still okay?

It depends on your overall plan. Five years is on the edge. If you have other income sources in retirement (pension, CPP, OAS, rental income) and won’t need to draw heavily from your portfolio right away, holding XEQT a bit longer is more reasonable. But if your portfolio is your primary income source, I’d start transitioning toward a more balanced allocation by this point. The XEQT glide path guide walks through exactly how to do this.

Should I sell my XEQT if one of these situations applies to me?

Not necessarily. Selling triggers tax consequences in non-registered accounts, and if you’re in a TFSA or RRSP, selling and rebuying costs you the bid-ask spread. The better approach is usually to redirect new contributions toward the more appropriate investment while gradually shifting existing holdings over time. The exception is if you need the money imminently (Situation 1) or if you’re a US person (Situation 7) — in those cases, a more immediate change might be warranted.

I have some of these issues but still want to invest. What should I do?

Start with the foundations: pay off high-interest debt, build a basic emergency fund, and make sure any money you need short-term is in something safe. Once those boxes are checked, you’re in great shape to start buying XEQT. You don’t need to have everything perfect — you just need to make sure the money you invest is money you truly won’t need for 5+ years. Even small, regular contributions to XEQT while you sort out the other pieces can make a meaningful difference over time.

The Bottom Line

I could have written this entire guide as another “XEQT is amazing, buy it now” post. That would have been easier, and honestly, it probably would have gotten more clicks. But I think you deserve better than that.

The reality is that XEQT is a phenomenal investment vehicle for the majority of Canadian investors in the majority of situations. Its simplicity, diversification, and low cost make it genuinely hard to beat for long-term wealth building. I believe that, and everything else on this site reflects it.

But personal finance is personal. Your timeline, your debts, your risk tolerance, your tax situation, your family circumstances — all of that matters. And if one of these seven situations applies to you, taking a slightly different path isn’t a failure. It’s smart.

Handle the short-term stuff first. Build your foundation. Then let XEQT do what it does best: quietly compound your wealth over decades while you get on with your life.

This content is educational and does not constitute personalized financial advice. Consider consulting a fee-only financial advisor for guidance specific to your situation.