The Canadian stock market has been on an impressive run. Using the iShares S&P/TSX 60 Index ETF (TSX: XIU) as a proxy, the Canadian stock market has delivered roughly 24% annualized returns over the past two years, compared with about 12.5% annually over the past decade. Strong gains like these can be thrilling for investors — but they can also create anxiety. Many people worry they’re arriving late to the party and risk buying at the top.
Yet waiting for the “perfect” entry point can be just as costly as buying at the wrong time. Markets often climb longer than expected, and investors who stay on the sidelines risk missing years of compounding. When the TSX refuses to slow down, the smarter approach isn’t to avoid investing — it’s to invest with discipline and a clear strategy.
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Focus on quality companies
In hot markets, speculative stocks and quick wins often dominate headlines. However, experienced investors usually prioritize high-quality companies with durable business models, strong balance sheets, and consistent cash flows. These businesses are far more likely to deliver reliable returns over time — even if markets become volatile.
Canada’s banking sector offers a clear example. Institutions such as the Royal Bank of Canada (TSX: RY) have built reputations for stability and long-term growth. Over the past decade — through the economic shutdown in 2020 — the bank has increased its earnings per share (EPS) at a compound annual growth rate of roughly 8% while growing its dividend at about 7% per year.
This consistency matters during both good times and bad. Quality companies may not always produce the most dramatic short-term gains, but they tend to reward patient investors with steady earnings growth and rising dividends. Inevitably, when markets experience pullbacks, those temporary dips can create excellent opportunities to accumulate shares of strong businesses at better valuations.
Use dollar-cost averaging to stay invested
Another powerful strategy during strong markets is dollar-cost averaging (DCA). Rather than investing a large lump sum all at once, investors contribute money at regular intervals — weekly, monthly, or quarterly.
This method has two key benefits. First, it removes emotion from investing. Instead of worrying about market timing, you follow a disciplined schedule. Second, DCA naturally smooths your entry price. When the market rises, your portfolio continues to grow. When it dips, your regular contributions automatically buy shares at lower prices.
Over long periods, this simple approach can significantly reduce timing risk while keeping investors consistently exposed to market growth. Combine regular investments with reinvested dividends, and the compounding effect can become remarkably powerful.
Diversify beyond the Canadian market
The Canadian stock market consists of many excellent companies, but it is also highly concentrated. Financials, energy, and materials dominate the market, accounting for roughly 37%, 18%, and 16% of the index, respectively.
Because of this concentration, Canadian investors benefit from expanding their portfolios globally. International exposure adds access to sectors that are underrepresented in Canada — especially technology, healthcare, and consumer staples.
A simple way to achieve this diversification is through global exchange traded funds (ETFs) such as the iShares Core MSCI All Country World ex Canada Index ETF (TSX: XAW). This fund provides exposure to thousands of companies across developed and emerging markets. By combining global investments with strong Canadian holdings, investors can balance sector exposure while tapping into multiple economic growth engines.
Diversification also reduces dependence on any single economy or commodity cycle, making portfolios more resilient in a rapidly changing global environment.
Investor takeaway
When the TSX is surging, the temptation may be either to chase hot stocks or avoid investing altogether. Both approaches can lead to poor outcomes. Instead, successful investors stay focused on quality companies, disciplined investing habits, and global diversification. By building positions gradually and maintaining a long-term perspective, you can continue investing confidently — even when the market refuses to slow down.
