How to Invest in 2026

How to Invest this Year

Hey Readers!

Welcome to a new investing year that is bound to have many twists and turns. Related to the rest of the year ahead, we hope that comes on the heels of a 2025 investing year that was kind to you. Certainly, from a return point of view, another huge year of returns. Here are some considerations about how to invest this year and what to watch out for too.

What to Watch

Unless you were mostly in fixed income/bonds in 2025 (we were not at Cashflows & Portfolios!), investor returns were very positive in 2025 despite tariff wars putting a major fright into the global economy. As we know in hindsight, there were still pockets of poor sector performance in 2025 — investors heavy into real estate and energy were two big ones that got hit — but overall it was both a wild and rewarding investing year if you stayed in stocks.

Will 2026 be different? If so, how much?

Here is what we are watching this year, and we’ll conclude with some personal thoughts about how we’re investing this year below.

What we are watching

1. We believe the Canadian dollar may be a bit stronger in 2026 vs. 2025 since, frankly, confidence in the U.S. is shaken.

You can read more from this detailed Morningstar Canada article here.

2. U.S. stocks may continue to underperform Canada and other international markets.

The S&P 500 (which is largely a tech index now) exhibits a very high price-to-earnings (P/E) ratio that remains well above historical norms. The AI boom seems to be supporting the S&P 500 returns. How sustainable is this??

Stock concentration might only work so much in 2026…

From this recent deep dive outlook article from BlackRock:

“The second half of 2025 delivered evidence of broadening participation, in both market performance and earnings growth. All 11 sectors of the S&P 500 posted annual gains — a rarity in recent years — and index returns were less concentrated.⁹ The top five weights in the S&P 500 contributed 29% of the index’s 11% gain in the latter half of the year.¹⁰ Since 2020, the top five names have been responsible for 45% of annual returns.^11″

This means, like other market-watchers, we believe ex-U.S. assets may deliver returns more than the S&P 500 in 2026. Another year of bias to Canadian stocks could work out well. We will see if we are right!? This brings us to point #3.

3. AI might be the future, but AI stocks may taper. We believe there has been a bit too much overexuberance built into stock prices in the U.S. So, like the dot com boom of the late-1990s and early-2000s, we feel earnings don’t yet support the shift.

4. Oil prices are likely not going much lower, but we also don’t believe they are going much higher in 2026. We have all seen and read about a shift away from “clean energy” projects in recent years, which you would think would pump up oil prices but that hasn’t happened yet.

5. The current Canada-U.S.-Mexico Agreement (CUSMA) isn’t set to expire until 2036, but you’ve probably heard there is a review planned for 2026 – that gives all parties the chance to negotiate modifications and vote on whether to extend the agreement further, which is likely going to be bad news for Canada. We anticipate the entire agreement may be in jeopardy.

How to Invest in 2026

Those are a few big themes we’re watching, although there are likely many more we could have listed.

In light of these themes, both Joe and I thought it would be interesting to share how we’re investing near-term, in 2026, and how we’re managing cashflow from our own respective portfolios.

Also, keep in mind that both of us are in a stage of life where we are (or soon will) living off our portfolios, which generally means some level of “conservativeness” is required.

On any cash savings/emergency funds in 2026 to thwart stock market risk:

Mark:

• Mark has kept a small emergency fund intact for about 15 years – that balance is about $10,000, give or take. It helps him with his sleep-at-night factor!
• Beyond this emergency fund balance, Mark has mentioned on My Own Advisor frequently that he keeps a growing cash wedge inside his registered accounts that will be used for this 2026 retirement income spending.
• Mark has no big plans to change his cash position in 2026 – if anything, he mentioned he’ll keep more cash on hand!

Joe:

• Joe has a habit of having cash on hand.  It might not be the most efficient use of capital, but it’s what works for his family and peace of mind.
• Like Mark, not only is there some cash to cover annual expenses, Joe keeps a small percentage of his investment accounts in cash (more so in his corporation – you can see why below!). This percentage fluctuates as opportunities to add and remove investment positions present themselves.
• With major home renovations and a new vehicle purchase completed in 2025, Joe does not plan to make any large capital expenditures in 2026.

On Investing in 2026:

Mark:

• Mark has shifted his portfolio over the years to a more balanced mix of income stocks and low-cost ETFs. He’s about 90% equities overall.
• Of that 90%, he’s about 50/50 now: 50% of his portfolio is in Canadian dividend-paying stocks and the remaining 50% is in low-cost equity ETFs.
• Once again, no plans for big changes in 2026. If anything, more low-cost ETF units will DRIP inside the TFSAs Mark and his wife own = compounding growth tax-free.

Joe:

• Joe also follows a hybrid method of investing with a mix of dividend stocks and index investing with low MER diversified ETFs. The investment strategy depends on the account type, taxation, and account holder (leave a comment if you would like us to elaborate!)
• Joe has been slowly increasing his percentage of indexed ETFs vs dividend stocks and plans to continue this trend in the years to come.

On drawing down our corporations for cashflow in 2026:

Mark:

• At the time of this post, Mark uses his corporation’s assets like an emergency fund – holding cash/cash equivalents.
• Those assets will be withdrawn this year and next year for living expenses.
• Mark is likely to pay himself a salary in 2026. This will not only help him meet his retirement spending needs but also contribute to his future CPP income stream and add some new RRSP contribution room as well.

Joe:

• Joe has built a portfolio within his corporation that generates income, which helps pay for his family’s annual expenses!
• As retirement projections specialists, Joe knows that portfolios inside corporations can face double taxation upon passing (that is, without implementing more complex estate planning, like the pipeline strategy). With this in mind, Joe plans to reduce (and eventually close his corporate account) over the years so that it’s not included in his final estate.

Final Thoughts – How to Invest this Year – What to Watch

At Cashflows & Portfolios, we believe this investing year could be a trying one to say the least. We’re planning to navigate that in a word by diversification: keeping cash, more global equity ETFs, and being cautious that with our financial projections, this year’s investing returns could be much less than 2025 and 2024 the year before.

Many of our subscribers seek out our time and services because they want to know not just how but really when they can retire. Retirement income planning in 2026 may need to face many headwinds.

We continue to believe once you understand the potential cash flow from your portfolio, once you add up all the available income streams, you can work towards designing the life you want to lead amongst broader market and economic turmoil.

Managing your portfolio comes with tradeoffs and risks. There is no perfect portfolio, and risks are only clear in hindsight. Personal finance asks all of us to balance the priorities of today while you plan for tomorrow.

While we anticipate 2026 will be a challenging year for many reasons, it doesn’t mean you can’t start planning for what might happen now.

We hope this post provides some insights into our respective philosophies and portfolio management for 2026. We hope this also provides some inspiration for your own money journey, including how we might be able to help you out too.

Need any support with some low-cost retirement income projections? We can help!

As passionate DIY investors, we offer up our time and expertise to help other DIY investors. We’ve been more than happy to support hundreds of clients at the time of this post, many of which return year after year (the crazy discount we offer for our returning clients helps!).

We know we can help you out too at a low-cost compared to the services and thousands of dollars charged by others!

If you are interested in obtaining private projections for your personal financial scenario, read more about our retirement projections services.

A reminder to those who have recently joined our readership in early 2026 as new fans of this site – thank you since our site continues to grow!!

Thanks to all readers and members of this site. It’s a pleasure to engage with you and we’re here to support all DIY investors this calendar year.

Joe and Mark