Written by Christopher Liew, CFA at The Motley Fool Canada
Economists and market analysts have mixed forecasts about the Toronto Stock Exchange (TSX) heading into 2027. Some say heightened geopolitical risks stalled a potential record-setting rally in 2026, but expect momentum to return next year. Others remain cautious, citing moderate corporate earnings growth and a sluggish economic environment.
This contrasting outlook highlights the uncertainty ahead. If you have the appetite to invest on a small budget, be guarded with your investment choices. As of this writing, the TSX is up 12.9%, with three of 11 primary sectors in the red.
Communications services, real estate, and technology have underperformed versus the broader market. Meanwhile, energy, financial services, and utilities have displayed resiliency for most of the year. However, higher oil prices and a supply crisis helped the energy sector.
Build a deliberate, low-cost TSX strategy
Asset selection is key if you’re investing with a small budget and during uncertain economic cycles. Build a deliberate, low-cost TSX strategy focused on risk mitigation, instant diversification, capital preservation, and tax efficiency.
In addition to your core holding, leverage your Tax-Free Savings Account (TFSA). This ensures that all earnings inside the account are 100% tax-free. You’ll also benefit from compounding if you reinvest dividend income.
Comprehensive core holding
You can own the entire Canadian stock market with the iShares Core S&P/TSX Capped Composite Index ETF (TSX: XIC). This exchange-traded fund aims to replicate the performance of the S&P/TSX Capped Composite Index. BlackRock Asset Management Canada, the fund manager, invests in all primary sectors and currently holds 216 stocks. The minimal fees will not erode long-term compounding.
At $57.19 per unit (+14.9% year-to-date), this 25-year-old ETF pays a 2% annual dividend, distributed quarterly. Financials (35.2%), basic materials (17.1%) and energy (15.8%) have the highest exposure. BlackRock designed XIC to be a long-term core holding that will provide long-term capital growth, too.
Foundational holding, monthly distributions
Like XIC, the iShares S&P/TSX Composite High Dividend Index ETF (TSX: XEI) carries a medium-risk rating. However, instead of quarterly distributions, this ETF pays cash monthly. If you invest today, the unit price is $39.93, along with a 3.3% dividend yield. XEI outperforms the TSX, up 27.2% year-to-date.
BlackRock Asset Management designed XEI to be a foundational holding. Its objective is to replicate the performance of the S&P/TSX Composite High Dividend Index. As of this writing, the fund holds 74 stocks. The current exposure aligns with the TSX’s top-performing sectors thus far in 2026 – energy, financials, and utilities.
