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One of the sharpest tools for building a $1-million tax free savings account is the simplest investment product of all time.

It's an S&P 500 index ETF. There, you're done.

We developed a million-dollar TFSA calculator on the idea that it's possible to build major wealth over the long term by making steady contributions to a TFSA. The annual contribution limit for TFSAs is set by the government (it's currently $5,500); once you've maxed out your TFSA, you have no more manoeuvring room to build your TFSA. But you do have the freedom to try and boost returns through your choice of investment.

In building the calculator, I consulted with investment advisers Justin Bender and Dan Bortolotti of PWL Wealth Management. They suggested a three-part portfolio consisting of:

- 25 per cent in the 25-per-cent Vanguard Canadian Aggregate Bond Index ETF (VAB-T)

- 25 per cent Vanguard FTSE Canada All Cap Index ETF (VCN-T)

- 50 per cent iShares Core MSCI All Country World ex Canada Index ETF (XAW-T)

That's a well-diversified mix for a reasonably risk-tolerant investor, but a more aggressive person could step things up. One suggestion for doing this is to build your TFSA using only an S&P 500 ETF, available from a few ETF companies (BlackRock, BMO and TD) at a very low cost. Management expense ratios for these funds are in the 0.11 per cent range, which is a real value.

Why use just an S&P 500 ETF? The S&P 500 has outperformed both the S&P/TSX composite index and the MSCI Europe Australasia Far East (EAFE) index over most timeframes in the past 30 years. It's a well-diversified index, with strong representation from technology, health care and consumer discretionary stocks, all of which are barely a factor in the Canadian market. Top holdings are global companies, not specifically U.S. firms. Examples are Apple, Exxon Mobil and Johnson & Johnson. You might be able to beat the S&P 500 choosing your own stocks, but probably not. A lot of pros can't.

You'll find S&P 500 ETFs in both hedged and unhedged versions. Which to choose? It may not matter much if you have decades of TFSA building ahead. The S&P 500's 30-year annualized return was 9.7 per cent in Canadian dollars (that means no hedging) and 10 per cent in U.S. dollars (that's with hedging).

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