Stock markets continued their ascent in 2025, the third consecutive year of double-digit returns for Canadian and U.S. indexes. But 2026 has sparked renewed fears of a possible correction and rattling news headlines.
Whether it’s the events in Venezuela, political upheaval in the U.S. or unrest in many parts of the world, many investors are wondering what to do next. Do-it-yourself investors – those without a financial adviser – may be particularly bewildered.
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No matter what stock markets are doing, the advice for DIY investors is simple: Focus on your investment plan and ignore everything else.
January is a great time to revisit your plan, so here are three steps you can take to set yourself up for the year ahead.
Review your asset allocation
Your mix of stocks, bonds and cash is the most important part of your investment plan. Your asset allocation is a function of your financial capacity to take on volatility – and your emotional tolerance for it.
While your tolerance should remain somewhat stable over time, since it is largely a function of your personality, your capacity for volatility will probably change over time. This is because your ability to financially handle volatility is a function of your investment time horizon.
If you have money that you will need to use in the near term, the stock market is not the place for you. But if you have a longer time horizon – seven years or more – stocks make sense because you can ride out market declines.
January is a good time to ask yourself whether anything has altered your ability to take on stock market volatility. For your registered retirement savings plan, ask yourself whether you will be retiring sooner or later than you previously expected.
If you are retiring in 2026 or 2027 and will need money from your RRSP, you should be holding some cash to fund these withdrawals, which will protect you from a market downturn.
If you have a registered education savings plan and a high schooler going into Grade 10 in September, now is a good time to start moving some money into cash to fund future withdrawals.
Make an estimate of how much you will need for their first year, then put that amount into a GIC or another safe investment such as a high-interest savings exchange-traded fund.
Choose your investments
Investors do best when they choose simple, diversified investments, then buy and hold them over long periods. If you already have a tidy set of ETFs or index mutual funds that give you Canadian, U.S. and international stock market exposure, plus some bond exposure if that’s part of your asset allocation, then you shouldn’t need to re-evaluate your holdings.
But if you haven’t purposefully chosen your investments and are still picking stocks or ETFs haphazardly, now is the time to change that. Choose three to five passively managed ETFs and invest in these systematically.
This means knowing how you will divide up money between them when you add funds to your accounts – doing it without hemming and hawing about which will do best. Decide on the percentage of each to own and add new money to each ETF to get you to that allocation.
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If you own individual stocks, take an honest look at whether this approach is working for you. Stock picking is a difficult game – even professional money managers struggle to beat the market.
If you want to maximize your long-term performance, switch to an indexed portfolio. If you really love holding individual stocks, then at least sell down large holdings. Having more than 10 per cent in any one stock is risky.
Detach your emotions from your investments and sell down those winners that are taking up space in your portfolio.
Stop sitting in cash
Cash-like investments such as money market funds, investment savings accounts and high-interest savings ETFs have a place in pretty much everyone’s portfolio. They are essential for your emergency fund and any money you will need within the next three years.
Holding cash to take advantage of a market downturn – a common strategy for investors – is not a good idea. Trying to time the market by waiting on the sidelines for a decline has been shown to be detrimental to long-term returns.
Not only that, it can be emotionally exhausting; deciding when to reinvest that money will preoccupy your mind.
Having a plan for your investments reduces stress, prevents you from making emotional decisions and makes you confident as an investor. Make it a priority now and you’ll be able to stop thinking about the markets for the rest of the year.
Anita Bruinsma is a Toronto-based certified financial planner. You can find her at Clarity Personal Finance.
