5 Mistakes to Avoid With Your Investment Portfolio in 2026

Key Takeaways

• A key mistake for investors in 2026 is to assume that all stocks are expensive.
• In 2025, ignoring non-US stocks was a mistake. Given their outperformance, investors should consider adding more non-US stocks to their portfolios in 2026.
• For people getting close to retirement, it could be a mistake not take some risk out of the portfolio.
• Another potential mistake is spending too much time thinking about the macro environment when positioning a bond portfolio.
• It’s a mistake to assume that stocks’ returns over the past decade will be repeatable.

Margaret Giles: Hi, I’m Margaret Giles with Morningstar. Stocks had another strong year in 2025, but successful investors know they should look forward rather than look back. Joining me to discuss five key investment mistakes to avoid in the year ahead is Morningstar’s Director of Personal Finance and Retirement Planning Christine Benz. Christine, thanks for being here.

Christine Benz: Margaret, it’s great to see you.

Why It’s Not Too Late to Invest in Stocks in 2026

Giles: Do you think a key mistake that investors might make at this juncture is to assume that all stocks are expensive? And that they’ve hopelessly missed the party for investing in them. What should they do instead?

Benz: Well, 2025 was another great year for equity investors, especially, but bond investors did OK as well. But I think that might be a risk today that investors might assume, “Oh, I’m too late. Forget it. I had this cash sitting there.” And so I think a key thing to keep in mind is that not every part of the market is expensive. Small-cap and value-oriented companies have not done nearly as well as growth-oriented companies over the past several years. So, one idea, even though I love the one-and-done, a total market index fund, would be to potentially add on a small complement of small- and mid-cap value stocks using some sort of an index fund or maybe even an actively managed fund with some skill set and ferreting out undervalued companies in those spaces. You might consider just adding a small position in those to augment that broad US market, which has a lot of exposure to those big AI-related technology names. Just bear in mind, you wouldn’t want to take this too far. Because anytime you’re talking about small caps and value stocks, you’re getting more cyclicality and more sensitivity to what’s going on in the market. That can be good. It can be bad. But you wouldn’t want to put all your chips on that, even though that appears to be a relatively undervalued part of the US market, certainly today.

Why Investors Should Increase Their Non-US Stock Exposure in 2026

Giles: Right. And the US market overall has really gotten more and more concentrated over 2025. Good to keep in mind. In 2025, you warned that ignoring non-US stocks was a mistake. Is it still, given that non-US stocks have really outperformed in the past year?

Benz: Well, first, I just have to take a lap because it was actually a prediction that came true, and we had really great performance from non-US stocks. And I had been banging that drum for many years prior, and non-US stocks didn’t do so well. So, the key point here is that non-US stocks still do appear cheap relative to US today, certainly relative to the broad US market. When you look at the market capitalization of the global portfolio, it’s roughly two-thirds US, a third non-US. Most US Investors have nothing like a third of their equity portfolios in non-US stocks. So, I think many investors should still consider topping up their non-US exposure. And you really get nice sector diversification by adding to non-US, and you’re getting more exposure to sectors that are relatively underrepresented in the US market today. You’re getting more financials, you’re getting more basic materials and industrials. You get kind of a nice twofer. You get some global effects. You maybe get the tailwind of the dollar continuing to decline, but then you also get some nice sector diversification as well. So, I do think that ignoring non-US, even though non-US is maybe a little less attractive on a valuation basis than it was a year ago, I think that’s a potential mistake for investors.

How Investors Approaching Retirement Can Start Derisking Their Portfolios

Giles: For people getting close to retirement, you warn against not taking some risk out of the portfolio. Why is that, and how should they go about doing it?

Benz: This is a biggie because I often speak to older adults, and they really like equities. They’ve had a great experience in equities. US stocks have gained like 15% on an annualized basis over the past decade. They’ve had a great run. And so it’s very difficult to pry older adults’ hands off of their equity portfolios. But for people who are getting close to retirement, getting close to spending from their portfolios, I think it really does make sense to derisk a portion of your portfolio. Think in terms of your portfolio spending, what you might do in, say, the first five or 10 years of retirement, and think about derisking that portion of your portfolio. As you know, I’m a big believer in the Bucket approach to retirement portfolio construction. And in the typical bucket model portfolio I would put together, I would hold something like seven to 10 years’ worth of planned portfolio expenditures in a combination of cash and bonds, and high-quality bonds is what I would accentuate there. So, I do think that people should take a look at that. In terms of how to do it, ideally, you would be doing that derisking within your tax-sheltered account, where you wouldn’t face ill tax effects, to do that repositioning. Another alternative is to steer your new contributions. So, if you’re still working and contributing to those retirement accounts, think about channeling all of your new contributions, or most of your new contributions, to those safer holdings as a way to kind of move up your allocation there. And that’s also a great strategy if you’re adding to your taxable holdings. The best way to change the complexion of that taxable portfolio is with those new contributions, because that’s a tax-efficient way to do it.

Giles: Right. That’s helpful to think about, kind of an incremental change.

Benz: Exactly.

Why Bond Investors Should Focus on Their Spending Horizons Instead of the Fed

Giles: Sticking with fixed-income here, you think another potential mistake is spending too much time thinking about the macro environment—so, the economy, interest rates—when positioning that bond portfolio. What should people do instead?

Benz: Get off FedWatch, because I think that is a common trap. I wrote about this in 2025, Margaret, because my sense was that I was hearing from a lot of investors like, “What do you think the Fed’s going to do? Do you think that I’m better off holding cash for now and moving the money into bonds?” I feel like the idea is to set up a portfolio that makes sense for you strategically, given your own spending horizon, and use that to inform how you situate your fixed-income holding. In all of our research on diversification, we find that high-quality fixed income is a great place to be. If you’re looking for an antidote to equities. So, anchor on high quality, and from there, look at your anticipated spending horizon. If you have a very short spending horizon, you probably don’t want to be in bonds at all. If you have a spending horizon of the next one to two years, that’s a good place to hold cash. And then, if you have a roughly three- to five-year spending horizon, that’s a good place to hold short-term bonds, which will tend to yield a little less than intermediate-term, but we’ll tend to have more interest rate-related stability. And then, if you have a spending horizon between five and 10 years, that’s where I would make an allocation to high-quality intermediate-term bonds. And then if my spending horizon is 10 years or beyond, well, that’s my equity allocation. But I think that’s kind of a good way to arrive at a sensible allocation to various types of cash and fixed-income holdings, and then just kind of sit with them because you’ve set it up to be a long-term allocation.

Why Investors Shouldn’t Assume Past Returns Will Be Repeatable

Giles: Right. So, finally, you think it’s a mistake to assume that the returns that stocks have gotten over the past decade will be repeatable. What numbers should we be using instead?

Benz: I referenced that 10-year, 15% annualized return on the US market. Don’t use that. It’ll make you feel good in terms of like, “Oh, wee, I don’t have to save that much.” But the downside is that you could come up short if the market doesn’t cooperate with those aspirations. I would anchor on long-term historical returns, maybe even set it a little bit below long-term historical returns, because I think most people would rather be safe than sorry. I would definitely use a sub-10% equity return expectation. And then for fixed income, historically, starting yields have been a pretty good benchmark of what to expect from fixed income. We’re at like a 4% yield on a 10-year Treasury today. That’s probably a decent benchmark for how much to expect from your fixed-income allocation. So, definitely temper expectations. Maybe we’ll all get lucky, and the market will continue to beat its historical performance, but I wouldn’t bank on it. I would probably temper my expectations a little bit.

Giles: All right. Words to live by, perhaps. Christine, thanks for taking the time.

Benz: Thanks so much, Margaret.

Giles: I’m Margaret Giles from Morningstar. Thanks for watching.

Watch 4 Financial To-Dos to Kick Off the New Year for more from Christine Benz and Margaret Giles.