As investors, it’s natural to be wary of risk. Market volatility and sell-offs can be uncomfortable. But as long as risk doesn’t disrupt your financial plan, it can also lead to new opportunities. 

Right now, risks are mounting across markets. Uncertainty surrounding the economic impact of AI continues to grow. Geopolitical tensions are threatening to unleash a new wave of international conflict. And trade barriers are actively rewiring global supply chains.

As 2026 takes shape, these risks could drive disruptions over the coming months. At the same time, each could also serve as a catalyst for future growth. For investors seeking to compound through the chaos, strong defensive pillars can allow them to weather the storm – and even emerge stronger on the other side. 

The State of Play: A Year of Transition

When faced with uncertainty, it’s tempting to turn a blind eye and hope for the best. But taking a clear-eyed view of the situation is the first step in building a resilient portfolio.

2026 remains a year of transition, with several risks looming large over the next few quarters:

1. Political Headwinds. America’s domestic political situation remains complex, as evidenced by an extensive (and costly) government shutdown in 2025. If the economy experiences a downturn, partisanship could make meaningful fiscal stimulus challenging. This year’s midterm elections may also result in a significant shake-up.
2. Geopolitical Tensions. Geopolitical tensions around the world could lead to the emergence of new conflicts or the resurgence of old ones in 2026. Countries like Iran, Venezuela, Greenland, and Taiwan could all serve as potential flashpoints. And as the Russo-Ukrainian war drags on, oil sanctions continue to weigh on global energy markets. 
3. AI Market Risk. AI innovation continues to help power the market’s rise, but it has also stoked fears of a bubble. Collectively, Big Tech plans to spend up to $700 billion on technology infrastructure this year, which is an aggressive bet on future AI profits.¹ Moreover, soaring valuations have led to a decline in the risk premium associated with investing in stocks over bonds.
4. The Fed’s Future. The Trump administration’s campaign to lower interest rates has raised questions about the future of the Federal Reserve’s independence. Kevin Warsh, expected to be the next Fed chair, has called for a new Treasury-Fed Accord. Such an agreement could pose challenges for the Fed’s ability to control inflation.
5. Trade Uncertainty. Although the Supreme Court declared many of Trump’s tariffs illegal, the president reacted by implementing additional levies through alternative legal pathways. Between the potential for tariff refunds and the uncertain state of many carefully negotiated trade deals, trade continues to be a source of disruption in 2026.

Compared to previous years, investors are currently facing a broader range of potential threats. Any one of these risks could undermine markets in the coming months. But while it’s easy to focus on the downside, transitions can also create opportunities for growth.

Growth in Chaos: Finding the Silver Lining

Short-term disruptions often set the foundation for long-term expansion. And while investors may end up navigating increased volatility through the rest of 2026, there are silver linings on the horizon. 

Consider the current state of geopolitical tensions. The shift from American global hegemony to a multipolar world order is driving increased potential for conflict. But at the same time, this transition has incentivized many countries to substantially increase investment in their domestic defense industries. In Europe, the continent’s ‘defense renaissance’ has unleashed a range of new opportunities for growth.²

When it comes to AI, the current state of market valuations may give investors pause. The Shiller PE ratio, a measure of cyclically-adjusted valuations, has only been higher during the dot-com boom.³

Yet the dot-com boom also demonstrates that if a market correction does occur, it won’t necessarily need to lead to a protracted economic downturn. In fact, AI developments will likely lead to greater productivity across the economy. The transition from horses to cars was not painless, but it did help dramatically increase standards of living.

And while analysts have expressed concern about the Fed’s future, a more cohesive debt management strategy could help control government interest costs. Improving the sustainability of America’s public finances may help foster market growth. Moreover, Treasury Secretary Scott Bessent has indicated that he expects the Fed to move slowly in adjusting the central bank’s balance sheet, fostering a steady transition.⁴ 

No investor has a crystal ball. But as these examples demonstrate, risk and reward are usually two sides of the same coin. Investors who are too fearful of the former can often end up missing out on the latter.

Weathering The Storm: Building Your Defenses

As we’ve seen, there are reasons to be optimistic about the transitions that this year will bring. However, investors still need to prepare for potential stormy weather ahead. 

To ensure that market volatility doesn’t derail your wealth strategy, it’s important to focus on three core pillars of defense:

• Adequate Liquidity. Ensuring that you have sufficient cash reserves to match your anticipated outflows is paramount. If you have enough liquidity to cover lifestyle needs, you can avoid selling assets at disadvantageous prices during a drawdown. 
• Global Positioning. Domestic political uncertainty underscores the value of a broader approach. Global portfolio exposure can help investors capitalize on international opportunities as they arise, while also ensuring that their returns are not overly dependent on a specific sector or industry.
• Emotional Discipline. Emotional resilience is a critical asset. When markets drop, it’s easy to lose sight of your long-term strategy and make impulsive decisions. Comprehensive planning supports the confidence and discipline necessary to look past daily fluctuations and focus on the horizon.

As always, these defensive pillars should be anchored by timeless principles of intelligent investing. These include a focus on consistent compounding, the distinction between price and value, and remembering that risk is something to be managed – not something to be avoided outright.

Conclusion: The Long View

Navigating a risky world doesn’t require extreme reactions. Instead, it requires a steady hand and smart planning. 

While the headlines may be dominated by negativity, it’s important to remember that pessimism is rarely permanent. For instance, last year’s April sell-off quickly reversed, despite many commentators forecasting an extended pullback. While the rest of the year could bring bouts of volatility, markets have historically demonstrated a remarkable ability to climb a wall of worry.

By acknowledging risks without succumbing to fear, we keep ourselves open to the growth that can follow. As the rest of the year takes shape, remember that preparation is key to both managing volatile periods and benefiting from an eventual recovery. Should you or your family have any questions about how Sound View builds resilient portfolios, we invite you to contact our office today.

^[1] CNBC, Tech AI spending may approach $700 billion this year, but the blow to cash raises red flags Link

^[2] Janus Henderson, European defense stocks: The magnitude of Europe’s rearmament remains underappreciated Link

^[3] Robert Shiller, Shiller CAPE Ratio Link

^[4] Reuters, US Treasury’s Bessent says Fed will take its time on balance sheet moves Link