The point is that all the risk-taking behavior that has driven markets to record highs and continues to push valuations higher than ever before may indeed come to an end at some point. Trees don’t grow into the sky. And while these returns have benefited a large number of Canadians, it is also true that defending before the tide turns is the right thing to do.
Here are three strategies I think investors would be wise to implement to protect their negatives in the event of a bear market in 2026.
Consider reallocating your portfolio
As we approach the end of the year, I think one of the most powerful periodic things investors can do is assess where their sector and company-specific exposure stands. Knowing how much you own in a particular sector or trend can help you determine how much risk you are taking heading into a new year.
Risk management and capital preservation are two factors that I think have been overlooked in recent years. Investors could almost throw a dart at a board of growth stocks and still end up higher from the 2023 period to today.
But going forward, I think that dynamic could change. Knowing your exposure to specific sectors and adjusting your portfolio accordingly to other sectors that may offer more upside could be a winning bet in 2026.
Add more defensive exposure
On the reallocation front, I think it may be wise to focus on consumer staples, certain financial sector choices, utilities and other companies that are considered acyclical.
I’ve long touted some top Canadian stocks as top picks in this regard. There are indeed a number of top Canadian stocks trading on the TSX that are worth considering from this perspective. In particular, I look for companies with a strong balance sheet, pricing power and solid management teams that can deliver results in times of recession.
These factors are likely to be considered more important in 2026 and the years to come. For those who think we are heading for a recession, that goes double.
Consider portfolio hedges
For investors who are almost entirely exposed to the stock markets, owning assets that are inversely correlated with stocks can be a good move. Over the long term, such a truly diversified portfolio may not offer the same amount of upside potential (stocks tend to outperform other lower beta asset classes such as bonds over the long term). However, during periods of market downturns, these assets can increase in value, offsetting losses.
So again, for those concerned about the future downturn in the market, this is an important factor to consider. Personally, I’m looking to add more fixed income exposure in 2026 through bonds, real estate and ETFs that track these two alternative asset classes.
#defend #investment #gains #today