Legendary investor Warren Buffett famously noted back in a 1988 report that his “favourite holding period is forever”. His Coca-Cola Company position, initially established that same year, still makes up over 12.2% of Berkshire Hathaway’s (NYSE: BRK.B) portfolio. Buying and holding high-quality businesses indefinitely sounds simple, but staying the course during volatile markets is tough for most humans.

When stock prices plunge, fear often overpowers logic. Investors panic, sell into cash at the worst possible time, realize unnecessary capital losses, and miss out on subsequent recovery gains. The secret to breaking this emotionally draining cycle is finding high-quality Canadian defensive stocks to buy that cushion market swings and give you the peace of mind to stay invested over the long haul.

Defining true defensiveness

When searching for Canadian defensive stocks to buy, most investors automatically think of traditional defensive sectors like utilities, telecommunications, and consumer staples. However, defensiveness is ultimately a behavioural characteristic of an individual stock rather than its strict sector label. Low-volatility businesses with strong defensive traits can actually be found across the energy, industrials, technology, and materials sectors too.

If you lack the time to research and manage individual equities, one exchange-traded fund packages these resilient performers into a single trade: the iShares MSCI Minimum Volatility Canada Index ETF (TSX: XMV).

Under the hood: The iShares MSCI Minimum Volatility Canada Index ETF

With nearly $400 million in net assets under management, the iShares MSCI Minimum Volatility Canada Index ETF tracks Canadian stocks that exhibit lower volatility relative to the broader MSCI Canada Index. The fund holds 73 individual stocks across key economic sectors. Financials represent the largest chunk at 35.7%, followed by energy at 14.4% and industrials at 12.1%.

The XMV ETF’s top 10 holdings feature some of Canada’s most essential businesses with deep competitive moats. These include all of the Big Six chartered banks, utility mainstay Fortis, railway titans Canadian National Railway stock and Canadian Pacific Kansas City, and insurance leader Great-West Lifeco.

These TSX heavyweights operate essential infrastructure that the economy depends on during downturns and expands during economic booms. Resultantly, the defensive stocks continue to generate respectable revenue, earnings and cash flows during the bad economic times, sustaining their market values while markets decline, and dampening the volatility in their stock prices.

Downside protection for your portfolio, with retained upside performance

The primary goal of minimum-volatility strategies is to reduce losses during market pullbacks while still capturing upside during bull market rallies. The XMV ETF’s historical track record demonstrates this balance effectively.

During the calendar-year 2018 market decline, the XMV lost just 7.1% while the broader TSX Composite index fell 11.6%. In 2022’s turbulent market, the XMV slipped a mild 1.3% compared to an 8.7% drop for the TSX Composite.

Crucially, the XMV ETF captures significant upside when markets surge. The fund returned 25.8% in 2021 and continued its strong momentum with double-digit returns in 2023, 2024, and 2025. With a low management expense ratio (MER) of 0.34%, costing about $3.40 annually per $1,000 invested and a reliable 2.1% quarterly dividend yield, the XMV ETF generates respectable returns at a reasonably low cost.

It carries a low-to-medium risk rating suitable for stabilizing long-term retirement portfolios.

The Foolish bottom line

Navigating market downturns requires emotional discipline. Whether you buy the diversified XMV ETF outright or use its top holdings as a shopping list for individual Canadian defensive stocks to buy, focusing on low-volatility, moat-protected businesses is a time-tested way to protect your principal investment and keep your wealth compounding “smoothly”.

The post Canadian Defensive Stocks to Buy Now for Stability appeared first on The Motley Fool Canada.

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Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends Berkshire Hathaway, Canadian National Railway, Canadian Pacific Kansas City, and Fortis. The Motley Fool has a disclosure policy.