Markets are soaring, and that has some investors sweating instead of celebrating. After a brief stumble in April, triggered by tariff tensions, the TSX has bounced back with surprising strength. It’s now hovering around all-time highs, up roughly 20% in the past year and nearly 70% over the last five.
The stock market looks blissful, but for savvy investors, record highs can trigger concern: Is now the time to buy, sell, or sit tight? If you’re wondering what to do next, you’re not alone. The smartest money in Canada is moving cautiously, not carelessly.
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Build a cash position before you need it
When markets run hot, the best thing you can do is prepare and not panic. That means ensuring you have liquidity before any correction hits. Cash gives you flexibility when stocks go on sale, but you need to build it up now, not later.
Start with the basics: spend less than you earn, and make saving a habit. Before you invest, you should save up for an emergency fund. A common guideline is to save three to six months of savings to cover your essential living expenses.
For more yield than a typical savings account, consider laddered guaranteed investment certificates (GICs). A GIC ladder with staggered maturities — say, every 6 to 12 months — can offer higher interest income and timely access to cash in case of market dips. Think of it as a safety net and a future boost of cash.
Let dividend stocks work for you
When volatility creeps in, dividend stocks can provide a welcome cushion. A well-built dividend portfolio can deliver passive income that you can either reinvest or use to pay bills without needing to sell a single share.
One reliable name to have on your radar is Fortis (TSX:FTS). This regulated utility provides essential services like electricity and natural gas, making its earnings resilient even during economic slowdowns. Fortis has increased its dividend for 51 consecutive years, one of the longest streaks on the Toronto Stock Exchange (TSX).
It’s a classic example of a defensive stock that can hold its ground when markets fall. However, it’s also key to only buy shares when they trade at good valuations, which isn’t the case today as the shares are fully valued.
Where’s the value?
The key to smart investing at market highs is selective buying. That means looking for underappreciated sectors or stocks trading at attractive valuations. Buying quality businesses on sale provides a margin of safety, which is crucial when markets eventually correct.
Right now, one of the most overlooked sectors in Canada is energy. While the overall TSX is up 20% in the past 12 months, the iShares S&P/TSX Capped Energy Index ETF (TSX:XEG) is actually down 4%. That’s a stark contrast and possibly an opportunity. With top holdings like Canadian Natural Resources and Suncor Energy, the exchange traded fund (ETF) offers a 3.6% yield and exposure to a sector that could rebound over the long term. If you’ve got an investment horizon of at least five years, XEG deserves a closer look.
Investor takeaway
If market highs have you nervous, don’t rush to sell everything. Instead, consider rebalancing your portfolio. Trim positions that look stretched or expensive, and shift into lower-risk assets like GICs, cash, or bonds. That way, you’re not just reacting to market highs — you’re preparing for whatever comes next.
Smart Canadian money isn’t chasing the highs. It’s building resilience, diversifying intelligently, and building a cash position to be ready for any market dips.
