By 
As 2026 approaches with lingering concerns about market volatility, AI bubble warnings, and potential trade disruptions, many Canadian investors are contemplating the safety of cash positions. However, seasoned financial experts are sounding a cautionary note: what appears to be the safest investment strategy could actually pose the greatest long-term risk to your portfolio.
“Volatility is the price you pay for long-term returns in the market,” explains Jason Pereira, a senior partner and financial planner at Woodgate Financial. His perspective challenges the growing narrative that uncertain times call for defensive positioning.
Despite persistent headlines about geopolitical tensions, stretched market valuations, and artificial intelligence sector concerns, Canadian investment patterns tell a different story. Frances Horodelski, a veteran of Canada’s investment industry with decades of senior-level experience, observes that there’s no widespread flight to cash among investors.
“I wouldn’t put too much stock in people claiming to want cash due to economic uncertainty here,” Horodelski noted in correspondence with Yahoo Finance Canada. She describes current investor behavior as leaning more toward aggressive positioning rather than defensive cash accumulation.
This investment appetite aligns with actual market performance, which has defied pessimistic sentiment. While Canadian economic outlook remains subdued, the TSX has demonstrated remarkable resilience, with approximately 80 percent of its components posting positive returns year-to-date. This strength spans multiple sectors, including banking, industrials, and consumer-focused companies such as Aritzia, Saputo, and Bombardier.
Understanding the True Nature of Market Risk
Pereira emphasizes that many investors fundamentally misunderstand the relationship between risk and volatility. “The single best way to avoid getting ruined from a market downturn is not to expose yourself to more risk than you can tolerate in the first place,” he explains. However, he quickly clarifies his position: “I’m not saying don’t invest — I’m absolutely saying invest. But the investment decision is not between ‘cash’ and ‘stock.’ That is a fallacy.”
Market fluctuations, while psychologically unsettling, don’t indicate systemic breakdown. Instead, they represent the natural cost of participation in long-term wealth building. “Not everybody’s willing to pay that price,” Pereira acknowledges, but completely avoiding volatility doesn’t eliminate risk—it merely transforms it into the risk of missing substantial returns when markets advance ahead of investor sentiment.
The Hidden Costs of Cash Positioning
When investors do maintain cash positions, both experts suggest these holdings typically serve functional rather than strategic purposes—funds earmarked for immediate liquidity needs or upcoming purchases rather than market-timing bets. “Generally speaking, I don’t believe investors use cash as an asset class or store of value but as a placeholder for future spending plans,” Horodelski explains.
This distinction becomes crucial in Canada’s current interest rate environment, where cash positions may actually erode purchasing power over time. While American investors have benefited from attractive yields on cash-equivalent instruments, Canadian returns remain disappointing. With one-year Guaranteed Investment Certificates yielding approximately 2.5 percent, cash holdings barely keep pace with living costs, meaning they’re not just missing growth opportunities—they’re struggling to preserve real value.
The Timing Trap
Horodelski warns that this dynamic explains why cash-timing strategies typically underperform. Retail investors often move to cash after volatility has already materialized, not in anticipation of it. Re-entry into markets usually occurs only after conditions feel comfortable again, creating a pattern that sacrifices valuable market participation time without effectively reducing portfolio risk.
Popular investment concepts like “waiting for better entry points” or “buying the dip” sound strategically sound but often disappoint in practice, according to Pereira. Research consistently demonstrates that the opportunity cost of cash positions outweighs the benefits of avoiding short-term market drawdowns. Cash held with specific, planned purposes can be valuable, but cash held while waiting for market clarity rarely proves beneficial.
The Insurance Illusion
This logic extends to financial products marketed as offering protection without trade-offs. Pereira cautions that downside insurance always comes at a cost, typically through limited upside participation. While he advocates for careful portfolio construction aligned with individual risk tolerance, Horodelski adds that market valuation and long-term cycle awareness remain important considerations.
Both experts emphasize that successful investing relies more on structural decisions than reactive responses. This means aligning portfolios with personal risk tolerance, understanding current market positioning within longer-term cycles, and accepting that uncertainty isn’t a signal to halt investing—it’s an inherent, permanent feature of market participation.
As Canadian investors navigate 2026’s challenges, the message from seasoned professionals remains clear: the apparent safety of cash may be the riskiest position of all. Instead of seeking shelter from market uncertainty, investors should focus on building appropriately structured portfolios that can weather volatility while capturing the long-term growth that only market participation can provide.