After a year of uncertainty and volatility, with U.S. tariffs dominating headlines and the “AI bubble” often cited, the temptation to seek the safety of cash may exist. But even though trends in AI stocks remain volatile and 2026 could see further trade volatility, the same investing rules apply as always, experts say.
“The single best way to avoid going broke due to a market downturn is not to expose yourself to more risk than you can afford,” said Jason Pereira, senior partner and financial planner at Woodgate Financial.
“I’m not saying don’t invest – I’m definitely saying invest. But investment decisions are not made between ‘cash’ and ‘stocks.’ That’s a fallacy.”
Even as anxiety about markets is growing, Canadian investor behavior isn’t clearly reflecting it. in an email Yahoo Finance Canada, Frances Horodelski, who has held senior positions in Canada’s investment industry for decades, said she hasn’t seen a huge move into cash despite headlines about volatility, geopolitics and overvaluation.
“I wouldn’t give too much credence to people who say they need cash because of economic uncertainty,” she said, describing investor behavior in many cases as being more “all-in.” This stance is also more in line with market reality. While confidence in Canada’s economy remains subdued, the Toronto Stock Exchange has quietly strengthened, with about 80% of its constituents in positive territory so far this year, with banks, industrials and consumer goods companies such as Aritzia, Saputo and Bombardier all showing strong performance.
Pereira said the gap between perception and reality is often down to a misunderstanding of volatility itself. Market fluctuations can feel unstable, but they don’t indicate that something has broken down. “Volatility is the price you pay for the market’s long-term returns,” he said. “Not everyone is willing to pay that price.” Avoiding volatility entirely doesn’t eliminate risk but shifts it, he added, and when market moves are ahead of sentiment, the likelihood of investors missing out on returns increases.
Both Horodesky and Pereira said that when investors do hold cash, it’s often functional – funds are parked for liquidity or upcoming purchases, rather than strategic bets on the market. “Generally speaking, I don’t think investors are using cash as an asset class or store of value, but rather as a placeholder for future spending plans,” Horodsky noted.
This distinction is crucial in the current context in Canada, where real losses can result from the security of savings accounts. While U.S. investors enjoy higher yields on similar cash instruments, Horodsky noted that Canadian returns “are not particularly attractive for cash.” With interest rates on one-year GICs at about 2.5%, cash on the sidelines has barely kept pace with cost-of-living increases, meaning it not only loses upside but also struggles to maintain its value.
Horodesky warns that this dynamic helps explain why attempts to transfer cash in and out often disappoint. When retail investors do move to cash, it usually happens after volatility has arrived, not before, and they will only re-enter when the market feels safe again. The result is less a defensive strategy than a delayed reaction that sacrifices market time without reliably mitigating risk.
Pereira said this is where popular views such as “wait for a better entry point” or “buy the dip” fail. They sound disciplined, but over time they often underperform and fail to stay invested. Research consistently shows that the opportunity costs of holding cash outweigh the benefits of avoiding short-term losses. It can be useful to hold cash and have a clear plan. Cash held in anticipation of clarity rarely does.
Pereira warns that the same logic applies to products and strategies that promise protection without trade-offs. He said anything that provides downside insurance comes at a cost, usually by limiting the upside. While Pereira emphasizes portfolio construction and risk tolerance rather than reaction, Horodesky added that valuations and long market cycles remain important over time.
Overall, they say, structure over reaction — align portfolios with risk tolerance, understand where the market is in the longer cycle, and accept that uncertainty is not a signal to stop investing but is an ongoing feature of investing.
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on X @jmacf. Download the Yahoo Finance app, available for Apple and Android.