For many Canadian investors, one of the biggest challenges is deciding how to build a simple, long-term ETF portfolio. One that you create and don’t have to touch regularly, other than once or twice a year.
Should you focus on global growth and diversification? Or should you prioritize dividend income and cash flow?
Over time, I’ve narrowed my own approach down to two core ETFs: XEQT and VDY. Each plays a very different role, and together they create a balance between long-term growth and dividend income.
In this article, I’ll break down what each ETF does, how they differ, and why this combination can work well for a simple Canadian investment strategy.
What is XEQT?
XEQT=100% Equity (Global Diversification Portfolio): it is an all-equity ETF that provides broad exposure to global markets in a single fund. It is essentially a fun of funds, where one ETF (XEQT) is a basket holding other ETFs such as XIC, XEF, ITOT and others
It typically includes:
- Canadian equities
- U.S. equities
- International developed markets
- Emerging markets
Key characteristics of XEQT:
- Highly diversified globally
- Focused on long-term growth
- Low maintenance (one-fund solution)
- Very simple “set it and forget it” structure
- Lower dividend yield compared to income ETFs
XEQT is designed for investors who want long-term wealth accumulation without having to manage multiple funds or rebalance frequently. In other words, if you are currently invested in combination of stocks and ETFs and want some peace of mind, XEQT may be for you.
In simple terms, XEQT is your long term growth engine.
What is VDY?
VDY = Canadian Dividend-Focused ETF (Income-Oriented)
VDY focuses on Canadian companies with strong dividend histories. It is heavily weighted toward sectors like:
- Financials
- Energy
- Utilities
Key characteristics of VDY:
- Higher dividend yield
- Monthly or regular income distributions
- Concentrated in Canadian large-cap stocks
- More income-focused than growth-focused
- Less globally diversified than XEQT
VDY is often used by investors who want consistent cash flow or who prefer seeing regular dividend payments.
In simple terms, VDY is your income engine.
XEQT vs VDY: The Key Difference
While both are ETFs, they serve very different purposes.
| Feature | XEQT | VDY |
|---|---|---|
| Focus | Global growth | Canadian dividends |
| Diversification | Very high | Medium (Canada only) |
| Income (yield) | Low | Higher |
| Volatility | Higher short-term swings | Slightly more stable income feel |
| Primary goal | Wealth accumulation | Cash flow + dividends |
Why I Use Both in My Portfolio
Instead of choosing one over the other, I use them for different roles.
1. XEQT as the foundation (long-term growth)
XEQT acts as the core of my portfolio. It provides:
- Global diversification
- Long-term compounding
- Exposure to strong international markets
This is the “silent builder” of wealth over time.
2. VDY as the income layer
VDY complements XEQT by adding:
- Dividend cash flow
- Psychological reinforcement (seeing income arrive regularly)
- Slight tilt toward Canadian stability and dividends
This helps balance the emotional side of investing, especially during volatile markets.
A Simple Way to Think About It
If you simplify the roles:
- XEQT = Future wealth
- VDY = Present income
One focuses on what your portfolio becomes while the other focuses on what your portfolio pays you today.
Example Portfolio Allocation
There is no single “correct” split, but here are common ways investors combine them:
- 80% XEQT / 20% VDY → Balanced growth with some income
- 90% XEQT / 10% VDY → Growth-focused investor with dividend exposure
- 70% XEQT / 30% VDY → More income-oriented approach
- 50% XEQT / 50% VDY → This is my balanced approach that I am following at the moment
The right mix depends on your goals, time horizon, and how much importance you place on dividend income.
Do You Need Both XEQT and VDY?
Not necessarily.
XEQT alone is already a complete, globally diversified portfolio.
However, adding VDY may make sense if:
- You want additional dividend income
- You prefer seeing regular cash flow
- You want a stronger Canadian dividend tilt
- You are comfortable reducing global diversification slightly
If your goal is pure simplicity, XEQT alone is often enough.
The Trade-Off to Understand
This combination is not about “better or worse”—it’s about trade-offs:
- Adding VDY increases income, but reduces global diversification
- Sticking only to XEQT maximizes simplicity and global exposure
Understanding this trade-off is key to building a portfolio that fits your mindset.
Final Thoughts
XEQT and VDY are not competing investments-they are complementary tools.
XEQT builds long-term global wealth through diversification and growth.
VDY adds a Canadian dividend income layer that provides cash flow and stability.
For me, combining both creates a balance between:
- Growth for the future
- Income for the present
- Simplicity in management
Ultimately, the best ETF strategy is the one you can stick with long term without overthinking it. If you are new to the world of investing and don’t have much money to start with (e.g $50 per paycheck) , I would suggest you allocate $25 per each bi-weekly and let it do its work in the background. Then check back in 6 months and again in 12 months and see how the two are doing and adjust accordingly.
