Don’t Overthink it: The Best $21,000 TFSA Approach to Start 2026

You do not need a complicated portfolio to build wealth inside a Tax-Free Savings Account (TFSA).

In fact, you can create a complete investment portfolio using just two exchange-traded funds (ETFs). One handles growth. The other provides stability. That is it.

If you are starting 2026 with $21,000 to deploy inside your TFSA, here is a simple structure that balances long-term compounding with a small safety cushion.

$20,000 in stocks

For growth, I would allocate $20,000 to BMO All-Equity ETF (TSX:ZEQT).

ZEQT is what is known as an asset-allocation ETF. Instead of tracking a single index, it holds a portfolio of underlying ETFs that collectively give you exposure to thousands of stocks across Canada, the United States, international developed markets, and emerging markets.

In one ticker, you get broad global diversification. U.S. large caps, international companies in Europe and Asia, Canadian blue chips, and emerging market exposure are all bundled together. The fund automatically rebalances, meaning you do not have to worry about trimming winners or topping up laggards. It does that internally.

Because ZEQT holds 100% equities, it is volatile. In a bad year, you will see drawdowns. In a strong year, you will benefit from full equity exposure. Over long periods, equities have historically delivered the strongest returns, which is why this sleeve does the heavy lifting for growth inside the TFSA.

The management expense ratio is 0.20%, which is extremely reasonable for a globally diversified, automatically rebalanced portfolio. Inside a TFSA, all capital gains and dividends can compound tax free. That makes an all-equity ETF particularly powerful if you have the risk tolerance to stick with it.

$1,000 in cash

The remaining $1,000 goes into BMO Money Market Fund (TSX:ZMMK).

ZMMK holds very short-term, high-quality fixed income instruments such as treasury bills, banker’s acceptances, and commercial paper. The average maturity is typically under 90 days. That means the price is extremely stable compared to bond or equity ETFs.

The current yield of 2.41% generally tracks the Bank of Canada’s policy rate, plus a small premium because of limited corporate exposure. As interest rates move, the yield adjusts fairly quickly up or down.

ZMMK is not meant to generate high returns. It is there to serve as dry powder. If markets fall sharply, you can redeploy it into equities. If you need quick liquidity, you can withdraw from it without worrying about selling stocks during a downturn.

Unlike a Guaranteed Investment Certificate (GIC), there is no lockup with ZMMK. And while it is not CDIC insured, the underlying holdings are very high quality and short duration, making it low risk.

Keeping a small cash allocation also makes it psychologically easier to hold the equity portion during volatile periods. Plus, ZMMK pays you interest monthly, which is all tax-free in a TFSA.

The post Don’t Overthink it: The Best $21,000 TFSA Approach to Start 2026 appeared first on The Motley Fool Canada.

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Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.