Happy new year – as 2026 commences, global equity investors have much to smile about.
Indeed, many investors have enjoyed three good years of solid returns. The S&P 500 alone rose 26.3% in 2023, 25% in 2024, and 17.9% in 2025.
Source: JP Morgan
All this despite a background of sometimes steep volatility and uncertainty.
In the past 12 months, investors faced particularly sharp declines following President Trump’s tariff announcements in March and April. And yet, markets quickly recovered and continued to produce strong returns.
2026 is likely to test investors’ resilience again
Following three above-average years, you may be among those concerned that markets have become overvalued. Without a crystal ball, it is impossible to predict what might happen.
One thing we can be sure of is what has happened in the past. Look back at history and you’ll see that markets typically recover – the steepest falls in the stock market are often immediately followed by some of the biggest rises. However, when investors have enjoyed long durations of strong returns, they often experience periods of comparatively modest growth, or brief declines as markets regain their equilibrium.
In short, after three consecutive years of above-average returns, history suggests we should prepare for a period of below-average returns.
But just because this is what we’ve seen happen in the past, there’s no way to predict that this will happen again now.
It’s impossible to predict the trigger for the next market decline
It’s no secret that technology and AI companies are currently the market frontrunners. If the so-called Magnificent Seven firms post disappointing earnings in 2026, that may cause a market shift. However, the steepest decline of 2025 was due to US tariffs – an area few people had on their radar a year earlier.
While some are concerned that AI is a bubble waiting to burst, it’s impossible to predict what will actually trigger the next market decline, though history suggests it’s likely to differ from investor expectations.
For this reason, the smartest investors take a long-term view and resist the temptation to time the market – an approach that consistently fails.
Prepare for the year ahead (by sitting back and doing very little)
With everything that’s going on, and against a backdrop of three consecutive years of gains, you may be tempted to adjust your portfolio to protect your downside.
But we would encourage you to resist this urge.
Your investment portfolio is designed to withstand market uncertainty and short periods of volatility, and is crafted to help you achieve your goals in line with your appetite for risk.
Adjusting and tweaking your investments based on feelings about what might happen in the coming year is short-sighted, amounting to speculation over focused planning.
Instead, we’d recommend you review your available cash; you may wish to bolster your emergency fund to help cover short-term, unexpected costs that might arise. This will prevent you from having to sell investments to raise cash when markets are in decline.
Beyond boosting your emergency cash fund, your long-term investment portfolio should be left intact – it’s a long-term plan for a reason.
Indeed, it’s likely that good preparation will actually involve you doing nothing at all.
Embrace 2026 with confidence
Whatever 2026 has in store for investors, your long-term financial journey remains unchanged.
Should declines come, they will most likely be as temporary as they’ve always been. Meanwhile, over the long term, the world’s greatest companies will continue to deliver growth.
Investing means resisting the urge to predict the future, remaining invested regardless of uncertainty. And, if 2025 has taught us anything, it’s that navigating difficult periods and still coming out on top is possible.
Always remember: through your well-diversified investment portfolio, you own shares in some of the world’s leading businesses. Businesses that will continue to move with the times, adapt to changing circumstances, and grow their earnings, no matter what headlines may say.
If you’d like to discuss any concerns you may have about what’s happening in the markets, or wish to review your financial plan, we’re always here to help.
