It’s TFSA (Tax-Free Savings Account) top-up season, and for the many Canadian investors wondering where to spend the last sum (again, $7,000 for this year), there are a wide range of solid options as the TSX Index looks to follow up an excellent 2025 with more of the same in 2026. Arguably, expecting another market boom like last year’s is simply unrealistic. But that doesn’t mean decent results are off the table, especially as the driving forces behind the stellar TSX Index run continue to hum along.
At the same time, however, potential downside risks also increase as valuations rise.
Notably, the gold and silver scene has been booming lately and could be at risk of something more vicious than a correction (perhaps a severe bear market) if the tide were to suddenly turn and investors suddenly feel better about the macro picture.
The profit-taking risk in some overheated corners of the market is real. And for investors concerned about chasing names near the top, I think a more discerning stock picker is a good choice.
Are investors overly optimistic in 2026?
While I’m certainly not bearish on Canadian stocks or the broader TSX index for 2026, I think investors should always be ready for a correction. And while the valuations certainly aren’t obscene yet, I think it makes sense to push for better discounts, even if they are harder to come by, because the stakes seem to be getting a little higher.
It’s times like these, when momentum is high and bearish events are overlooked (even 100% rate threats failed to derail the big TSX Index rally) when it pays to be just a little more cautious, conservative and defensively focused. Certainly, the so-called “TACO” (Trump Always Chickens Out) trade could gain popularity again.
But I think ignoring potential risks is always a bad idea. Rather than trading based on Trump tariffs or geopolitical events, I think investors would be much better off looking for undervalued companies and buying into them for the next seven to eight years, rather than trying to get in and out of stocks based on news events. Unless you are a seasoned trader who has an appetite for losing money, investing instead of trading may be the best choice, especially in an era when trading is seen as more exciting and attractive to newcomers to the market.
Fortis is an excellent defensive dividend payer
So, what are the best Canadian stocks to consider with a TFSA? Personally I think Fortis (TSX:FTS) is an excellent defensive choice to buy at a time when market risks may be underestimated. Ignoring market-wide risks may have paid off in 2025, but things could turn around and investors will have to be ready to sell, especially if markets overshoot, setting the stage for the return of a bear market moment.
With a nice 3.48% dividend yield, a boring but very predictable growth plan for the next few years, and less choppiness than the TSX, playing defense with new TFSA money might be a smart move. Of course, no stock, not even Fortis, is guaranteed to emerge unscathed after a market correction or something worse. But I would bet on FTS stock for its relative outperformance once the tide finally comes in and fear rises.
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