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LOOKING TO UPDATE your financial plan for 2026? Below are ten strategies you might consider:
Gaining control
January is a good time to audit your investments. I’d start with this very basic step: If you have accounts at multiple brokerage firms, see if you can consolidate them. This won’t necessarily lead to better investment results, but if you have fewer accounts, it’ll be easier to monitor and to manage them. This might not seem like an important exercise, but in my experience, investors often find long-forgotten investments, overpriced funds or unintended cash balances when they conduct an investment clean-up like this.
View from the top
The most common question investors asked in 2025 was some version of, “With the market so high, should we get more defensive?” To make this determination, I suggest looking at your portfolio through two lenses. First, total up the dollars you hold in relatively stable assets, including bonds and cash, then assess that relative to your cash needs over the next several years. That’s the first lens, and it’s what I might call the “calculator answer,” but it’s incomplete on its own. Of equal importance is to ask how you would feel if the stock market dropped. To answer this question, total up how much you hold in stocks and ask how it would affect you if you saw that number cut in half. While a 50% decline is a low likelihood at any given time, declines of that magnitude have occurred more than once, so it’s the rule of thumb I suggest.
Looking forward
The stock market in 2025 was a roller coaster. Early in the year, it dropped nearly 20%, but by year-end, it had gained nearly 20%. As we turn our attention to 2026, what should investors expect? On this question, Benjamin Graham offered this useful advice: “In the short run,” he wrote, “the market is a voting machine, but in the long run it is a weighing machine.” Anything could happen this year, in other words. But over longer time periods, it’s logical to expect the market to follow corporate profits higher. That’s Graham’s weighing machine. And that’s why, whatever the news of the day happens to be in 2026, we shouldn’t let short-term fluctuations shake our faith in the long term.
Past and present
Staying focused on the long term is sometimes easier said than done. That’s why I recommend this thought experiment: Imagine going back in time to January 2016. How many of the events we’ve experienced over the past decade—from the pandemic to wars to unexpected election results—could any of us have predicted? The reality is that it’s very difficult to know which way things will go. Even when a trend seems to point decisively in one direction, we should be careful to never bet too heavily on any particular outcome. As British economist Elroy Dimson has noted, “more things can happen than will happen.” For that reason, the ideal portfolio, in my view, is one that wouldn’t vary too much in response to short-term news.
A tough task
There’s a story about Benjamin Graham that tells us a lot about the wisdom of picking stocks. One day in 1926, Graham was reading through a company’s financial statements when he spotted what he thought might be an opportunity. To be sure, though, he had to take a train to Washington and sift through data available only at the office of the Interstate Commerce Commission. Graham confirmed it to be an almost no-lose situation, but it was one that other investors had overlooked because the information was so inaccessible. But today, that sort of information would be readily available online. That, in my view, makes stock-picking much more of an uphill battle than it was in Graham’s day, 100 years ago. The most recent data point: In 2025, nearly three-quarters of actively-managed funds trailed their benchmarks.
Clear math
In a 1991 essay titled “The Arithmetic of Active Management,” Stanford professor William Sharpe made this simple observation: “…it must be the case that (1) before costs, the return on the average actively managed dollar will equal the return on the average passively managed dollar and (2) after costs, the return on the average actively managed dollar will be less than the return on the average passively managed dollar [because actively-managed funds are usually more expensive].” Actively-managed funds are at a structural disadvantage, in other words. And according to a December analysis by Morningstar’s Jeff Ptak, this dynamic has only gotten stronger in recent years. “Fees appear to have gotten even more predictive,” he wrote.
Worthwhile switch
These days, a growing number of mutual funds are allowing shareholders to convert their holdings to equivalent ETF shares. If you have the opportunity to convert mutual fund shares you own, I recommend it, for two reasons. First, ETF fees are usually lower. Of more significance, ETFs are inherently more tax-efficient. While both mutual funds and ETFs are required to distribute income out pro rata to shareholders, ETFs usually incur fewer capital gains because they allow for “in kind” redemptions, which don’t require fund managers to liquidate holdings.
Second best
You may have read about new rules that’ll allow 401(k) accounts to invest in private funds. Are these a good idea? While every fund is different, author William Bernstein offers a perspective I find helpful: “The first people who invested in private equity got the filet mignon and the lobster tails, and the Vanguards and Fidelities of this world are going to wind up with tuna noodle casserole.” That isn’t a rule, but in my opinion, it may be more true than not.
“Why” investments
Some private funds convert to being publicly-traded. Are these a good idea? The Wall Street Journal’s Jason Zweig discussed this recently. These funds, he observed, “cast doubt on Wall Street’s narrative that investors can have their cake and eat it, too. You can have the mild price fluctuations of nontraded assets, or you can have access to your money whenever you want—but it’s turning out that you can’t have both.” Down the road, these funds might become reasonable investments, but they fit into an investment category I call “Why?” If you can earn reasonable returns with simpler, more proven types of funds, why take risk with something new and unproven?
All sides
A key challenge in investment decision-making is the fact that each of us tends to have our own way of looking at things. Some are more quantitative while others are more qualitative. Some are more aggressive while others are more cautious. And so on. That’s a problem because financial decisions usually require a blend of perspectives. That’s why I recommend a “five minds” approach to financial questions. Instead of coming at a question from only one direction, consider how an optimist, a pessimist, an analyst, an economist and a psychologist might look at that question.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
Great article, thanks and keep them coming in 2026. I am the S&P believer and will remain that way for life. The Best year to ALL.
Private equity – and – tuna noodle casserole. Ha! Great analogy. Thanks
Excellent article.
Thanks Mr. Grossman for this timely post!
The only thing I would add in terms of assessing one’s tolerance for stock market crashes is that preparing for their duration is at least as important as the percentage drop. A seasoned financial advisor I used to work with suggested imagining that stocks decline in value by 50% and require 10 years to recover as a valuable exercise in assessing one’s risk tolerance. That may seem bleak but that’s where market history is helpful.
Here’s a summary of U.S. stock market drawdowns I like to refer to. Of course it’s also important to remember that the future is under no obligation to follow the past – which means preparing for both much worse and much better outcomes – and that stock market crashes and drawdowns outside the U.S. (see Japan, Germany) have been much worse. There are no guarantees that U.S. exceptionalism – or our status as the world’s reserve currency and debtor of choice – will continue.
https://www.northerntrust.com/content/dam/northerntrust/pws/nt/documents/commentary/wealth-management/a-history-of-drawdowns.pdf
I appreciate your comments about Graham and high stock valuations. As a retiree, I am concerned about sequence of return risks and how I might react if my stocks lost 50% of their value and took 10 years to recover. I sleep well knowing that I hold enough in cash and short term treasurys to fund future withdrawals for at least ten years. Nice review, Adam.
Recent articles in HumbleDollar have discussed security concerns. These argue against all assets in one location. An alternative might be at a firm that still has brokers you have to call to get assets out, although with the availability of deepfake sound and video, will this continue to be an effective layer of security?
As Langston Holland mentioned only Fidelity among the major brokerages has an account lockdown feature that prevents unauthorized ACATS transfers. There has been MUCH discussion of this issue on Bogleheads and other forums.
Honestly there’s no excuse for other brokerages not offering this feature. That said, I think it’s still prudent to have assets at more than one brokerage as a hedge against cyberattacks or otherwise not having access to your account for a period of time (and this does happen fairly often). IMHO the choices in order of preference are Fidelity, Schwab and Vanguard.
Recent commentary on bogleheads.org suggests that ACATS transfer lockdown is available at Vanguard but you have to call them to set it up.
Fidelity has an account lock feature that is sort of like a credit freeze at the three reporting agencies. The account lock allows ATM and check use, billpay, deposits and trading. It blocks the big stuff like transfers out to other institutions, etc. Easy on/off with two-factor authentication.
Vanguard, my only other account, doesn’t have this.
Good point though. I have yet to look into “make this puppy read-only until I send in a blood sample”, but I’m interested.
Can you compare the first in, first out (FIFO) versus average cost basis methods? Why pick one over the other? Thanks
The “View from the Top” reminded me of Jonathan’s 1996 Getting Going article in the WSJ “If Booming Stock Prices Worry You, Then Try a ‘Lifeboat Drill'”. Just found it without a paywall here. The term Lifeboat Drill has now become part of the financial lexicon and it’s timely that Adam brings up the concept here.
Observation: 1996 was year two into the best five year run in the history of the stock market in real terms. People were nervous then as they are now. Think about that.
Determine your appropriate asset allocation and stick to it. That includes the cash reserves necessary to protect your stocks during a drawdown. Adam’s 50% recommendation is aggressive, but it’s wise.
Thank you. That 1996 article is terrific. No surprise that Jonathan was 30 years ahead of me in articulating these points!