Build a $1 Million Retirement with These 2 ETFs

Investing for retirement can be simplified significantly, as evidenced by the effectiveness of a straightforward strategy focused on Exchange Traded Funds (ETFs). By utilizing a Core and Satellite approach, investors can build a robust portfolio that could reach a value of $1 million. This method emphasizes a solid core of ETFs while allowing for the addition of high-conviction individual stocks to enhance overall returns.

The Core: Two ETFs to Anchor Your Portfolio

The essence of this investment strategy lies in selecting two key ETFs to form the foundation of your portfolio. The first, the Vanguard S&P 500 Index ETF (TSX:VFV), represents a gateway to the American economy. This ETF is designed for Canadian investors seeking exposure to the largest U.S. companies, including giants like Apple, Microsoft, Amazon, and Nvidia.

Since its launch in 2012, the VFV has achieved an impressive average annual return of 17.4% over the past 13 years. A hypothetical investment of $10,000 in this ETF could have grown to approximately $39,000, thanks to the power of compounding and reinvested dividends. The ETF also boasts a low Management Expense Ratio (MER) of just 0.09%, meaning that investors incur minimal costs—approximately $0.90 annually for every $1,000 invested.

The second ETF, the iShares S&P/TSX 60 Index ETF (TSX:XIU), complements the growth potential of the VFV with stability and income from Canadian stocks. Launched in 1999, the XIU tracks the largest companies on the Toronto Stock Exchange, with a significant portion of its portfolio—approximately 38%—composed of financial sector stocks. The ETF has a reasonable MER of 0.18%, leading to costs of around $1.80 per $1,000 invested.

Despite its lower exposure to technology stocks—about 10.6% compared to the VFV’s 36%—the XIU has delivered a solid 12.1% compound annual return over the past decade, effectively tripling a $10,000 investment to over $33,000.

Combining Growth and Income for a Balanced Strategy

Together, these two ETFs provide a comprehensive investment strategy. The VFV offers high-growth potential from the U.S. market, while the XIU adds stability and dividends from Canadian companies. This combination positions investors to benefit from both growth and income, appealing to a wide range of financial goals.

For those looking to establish a balanced retirement strategy, a split of 50/50 or 60/40 between the VFV and XIU may serve as an effective core. By automating contributions and reinvesting dividends, investors can set their portfolios on autopilot while waiting for long-term growth.

Once the core is established, investors can enhance their portfolios by allocating 10% to 30% of their capital to “satellite” investments. These may include high-conviction individual stocks that show potential for significant appreciation. Engaging with investment groups or leveraging personal research can help identify these opportunities.

Regular contributions are critical to building a successful retirement portfolio. By maintaining a disciplined investment approach and allowing compound growth to work over time, reaching a retirement goal of $1 million becomes more attainable.

In conclusion, the combination of the Vanguard S&P 500 Index ETF and the iShares S&P/TSX 60 Index ETF offers a straightforward yet powerful strategy for Canadian investors aiming for a secure retirement. By focusing on these two ETFs, individuals can simplify their investment process and enhance their potential for long-term financial success.