Geopolitical Risk in 2026: How XEQT's Global Diversification Protects Canadian Investors

I was lying in bed last Thursday night doing the thing every financial advisor tells you not to do: doomscrolling. In the span of about ten minutes, I read a headline about new tariff escalations between the US and China, another about rising tensions in the South China Sea, a third about European energy security concerns, and a fourth about a major emerging-market currency crisis. By the time I put my phone down, my heart rate was up and my brain was doing that anxious thing where it starts calculating worst-case scenarios for my portfolio.

Sound familiar? If you have been anywhere near a news app in 2026, you know the feeling. The world feels more uncertain than it has in years, and a lot of Canadian investors are tempted to panic, sell everything, or make some dramatic portfolio move they will regret in eighteen months.

I did none of those things. I set my phone on the nightstand, rolled over, and went to sleep. Not because I am some stoic investing monk – trust me, I am not – but because I own XEQT. And when you own the entire world in a single ETF, geopolitical risk hits different. It is still real, but it is manageable. It is already accounted for. It is, in a very literal sense, diversified away as much as humanly possible.

Let me walk you through exactly why.

1. The 2026 Geopolitical Landscape: A Lot Going On, All at Once

I am not going to sugarcoat it – there is a lot happening in the world right now, and a fair amount of it is relevant to investors. Here is a quick snapshot of the major geopolitical themes as of mid-2026:

• US-China trade tensions remain elevated. We are well past the early tariff skirmishes. Both sides have imposed and expanded tariffs on hundreds of billions of dollars worth of goods, with technology export restrictions adding another layer of friction. Supply chains have been shifting for years now, but the uncertainty is far from over.
• Ongoing armed conflicts in multiple regions continue to disrupt energy markets, shipping routes, and investor sentiment. These are not abstract risks – they directly affect commodity prices and global supply chains.
• Rising nationalism and protectionism are not just a US phenomenon. Countries across Europe, Asia, and Latin America have been turning inward, implementing industrial policies that favour domestic companies over foreign competition.
• The US-Canada trade relationship has been strained in ways we have not seen in decades. Tariffs and retaliatory measures have added real uncertainty for Canadian exporters.
• Supply chain reshoring and “friendshoring” are redrawing the map of global commerce, creating winners and losers across different countries and regions.
• Currency volatility has picked up as central banks around the world move at different speeds. The Canadian dollar has been notably weak, adding another variable for investors to consider.

None of this means the world is ending. It is important to keep perspective: the global economy is still growing, corporate earnings are still being generated, and billions of people are still going to work every day building businesses and creating value. But the background noise of geopolitical risk is louder than usual, and it is affecting how people feel about investing.

The question is: what should you actually do about it?

2. What “Geopolitical Risk” Actually Means for Your Portfolio

Let me demystify this term, because it sounds like something from a graduate economics textbook but it is actually very straightforward.

Geopolitical risk is the danger that political events, conflicts, or policy decisions in one or more countries will negatively affect the value of your investments. This can show up in several ways:

• Direct market drops: A country’s stock market tanks because of a war, coup, sanctions, or political crisis.
• Currency devaluation: A country’s currency collapses, eroding the value of investments denominated in that currency.
• Trade disruptions: Tariffs, sanctions, or export bans hurt companies that rely on cross-border commerce.
• Regulatory changes: A government nationalizes industries, imposes capital controls, or changes tax rules overnight.
• Contagion effects: A crisis in one country spills over into neighbouring countries or trading partners.

The critical insight is this: geopolitical risk is almost always country-specific or region-specific. It rarely affects the entire planet equally at the same time. Even during truly global events, different regions experience the fallout differently. Some are devastated, others are barely scratched, and some actually benefit.

This is exactly why single-country investing is so dangerous. When you concentrate your portfolio in one country, you are making a bet that that specific country will avoid the worst of whatever geopolitical turmoil comes next. And given that every country, without exception, eventually faces some kind of political or economic crisis, that is a bet you will eventually lose.

3. When Geopolitical Risk Became Real: Three Cautionary Tales

History is full of examples of investors who had their portfolios devastated by country-specific geopolitical events. These are not ancient history – they are recent enough that many of us lived through them.

Japan, 1989: The Lost Decades

In the late 1980s, Japan looked unstoppable. The Nikkei 225 had rocketed from about 10,000 in 1983 to nearly 39,000 by December 1989. Japanese real estate was so expensive that the land beneath the Imperial Palace in Tokyo was famously said to be worth more than all the real estate in California combined.

Then the bubble burst. The Nikkei crashed and kept falling for over a decade. It took until 2024 – thirty-four years later – for the index to consistently surpass its 1989 peak. An investor who put everything into Japan at the top in 1989 waited longer than the average career to break even. Meanwhile, global stock markets delivered strong returns during much of that same period. A diversified global investor barely noticed Japan’s lost decades.

Russia, 2022: A Market That Literally Closed

In February 2022, Russia invaded Ukraine. Western nations responded with unprecedented sanctions. The Moscow stock exchange was closed for nearly a month. When it reopened, many foreign investors found their holdings frozen – they could not sell, transfer, or access their money. Russian stocks listed on foreign exchanges collapsed, with some losing 90% or more of their value virtually overnight.

Investors with concentrated positions in Russian equities faced catastrophic, permanent losses. Not because of poor stock selection, but because of a geopolitical event that was almost impossible to predict and completely impossible to react to once it happened.

Brexit, 2016: Slow-Motion Uncertainty

When the United Kingdom voted to leave the European Union in June 2016, the British pound dropped 8% in a single day – its largest one-day fall in modern history. UK-focused stocks tumbled. The uncertainty dragged on for years as negotiations stretched out, and the FTSE 100’s returns meaningfully lagged behind global benchmarks for several years as businesses dealt with regulatory uncertainty, supply chain adjustments, and reduced foreign investment.

UK investors with heavy home-country bias paid a real price. Globally diversified investors barely felt it.

The pattern is unmistakable: devastating for concentrated investors, a footnote for diversified ones.

4. XEQT’s Built-In Geopolitical Shield

This is where XEQT starts to look like a work of genius in its simplicity. When you buy a single share of XEQT, you are not making a bet on any one country’s political stability, trade relationships, or economic trajectory. You are owning a piece of the entire global economy.

Here is what your XEQT portfolio actually looks like under the hood:

That is roughly 49 countries and 12,000+ individual stocks across every major industry on the planet. When a geopolitical event hits one country or region, the vast majority of your portfolio is somewhere else entirely.

Think about how this applies to the risks I listed earlier:

• US-China tensions escalate further? Your portfolio has exposure to both sides, plus 47 other countries that may benefit from trade diversion.
• A European energy crisis flares up? Only a portion of your international developed allocation is in energy-dependent European nations. Meanwhile, your Canadian energy stocks and US holdings are largely insulated or may even benefit from higher energy prices.
• An emerging market country faces a currency crisis? Emerging markets are only about 10% of your portfolio, and that 10% is spread across 25 countries, so no single crisis can do serious damage.
• Canada-US tariffs intensify? About 75% of your portfolio sits outside Canada, giving you significant protection from a Canada-specific economic hit.

No individual crisis can take down your whole portfolio. That is the point.

5. The Self-Correcting Mechanism: How Market-Cap Weighting Helps

Here is something about XEQT that most people do not fully appreciate: its market-cap weighting means it automatically adjusts when one region struggles and another thrives. You do not have to lift a finger.

Here is how it works. XEQT’s underlying holdings are weighted roughly by the market capitalization of each region and each company within it. If a geopolitical crisis causes one country’s stock market to shrink (because share prices fall), that country’s weight in the portfolio naturally decreases. At the same time, countries that are unaffected or benefit from the shift naturally become a larger portion of your holdings.

Think of it as a built-in rotation mechanism:

• If US-China tensions cause Chinese stocks to drop significantly, China’s share of your emerging markets allocation shrinks automatically. India, Taiwan, South Korea, and Brazil pick up a proportionally larger share.
• If European stocks struggle due to energy security concerns, Japan, Australia, and other international developed markets become a bigger piece of that allocation.
• If Canada enters a recession while the US economy holds up, the US portion of your portfolio naturally grows relative to the Canadian portion.

When iShares rebalances XEQT periodically to maintain its target regional allocations, it is also effectively buying undervalued regions and trimming overvalued ones – a disciplined, contrarian approach that most individual investors struggle to execute on their own because emotions get in the way.

You are getting professional, institutional-grade portfolio management that responds to geopolitical shifts – all for a management expense ratio that is a tiny fraction of what active managers charge.

6. The Danger of “Just Buy Canadian” or “Just Buy American”

I hear this all the time. “I know Canadian companies. I trust the banks. I will just stick with what I know.” Or the opposite: “The US is the best economy in the world. Why would I invest anywhere else?”

Both of these sound reasonable on the surface. Both are quietly dangerous, especially in a world with elevated geopolitical risk.

The case against a Canada-only portfolio

I love this country, but we need to be honest about our stock market:

• Canada represents about 3% of global stock market capitalization. Putting 100% of your portfolio here means ignoring 97% of the investable world.
• The TSX is heavily concentrated in just two sectors: financials (about 30%) and energy (about 17%). If trade policy, commodity prices, or Canadian housing wobbles, a huge chunk of the Canadian market feels it.
• Canada’s economy is deeply tied to a single trading partner. Roughly 75% of our exports go to the United States. That is an extraordinary level of dependence on one bilateral relationship – exactly the kind of concentration that geopolitical risk punishes.
• We are a small, open, resource-dependent economy. That is great when commodity prices are high and trade is flowing. It is less great when geopolitical disruptions hit commodity markets or trade relationships.

For a deeper dive on this, check out the article on home country bias – it is one of the most common and costly mistakes Canadian investors make.

The case against a US-only portfolio

“But the US market has crushed everything else for the last 15 years!” True. And Japan crushed everything else for the 15 years before 1989. Past outperformance of a single country does not guarantee future outperformance.

Here is what a US-only investor is betting on:

• That US-China tensions will not meaningfully damage US corporate earnings
• That the US dollar will remain strong indefinitely
• That mega-cap tech concentration in the S&P 500 will not become a vulnerability
• That US political stability will remain intact through every election cycle
• That no other region will outperform the US over your investing horizon

Any one of those assumptions could be wrong. All of them being right for the next 30 years? That is a bold bet.

XEQT takes the bet off the table by owning everything. If the US continues to dominate, your 45% allocation captures most of that upside. If international markets stage a comeback (as they have many times historically), you are there too. If emerging markets have their decade – as many economists expect given demographic tailwinds in India, Southeast Asia, and parts of Africa – you participate.

7. Why This Matters Even More for Canadians Specifically

I want to spend a moment on something that often gets overlooked: as Canadians, we have even more reason to diversify globally than investors in larger, more diversified economies.

Think about your total financial picture – not just your investment portfolio:

• Your job is almost certainly in Canada, meaning your income depends on the Canadian economy.
• Your home – if you own one – is a massive, leveraged bet on Canadian real estate.
• Your government benefits (CPP, OAS) are denominated in Canadian dollars.
• Your bank accounts hold Canadian dollars.

Before you even open your brokerage app, you already have enormous exposure to Canada. Adding a Canada-heavy investment portfolio on top of that is doubling, tripling, and quadrupling down on a single country that represents 3% of the global economy.

XEQT’s roughly 25% Canadian allocation is already arguably more Canada than a globally diversified portfolio would naturally include (Canada’s true global market-cap weight is closer to 3%). iShares intentionally overweights Canada in XEQT because it is designed for Canadian investors and there are tax advantages to holding Canadian equities. But the remaining 75% in international holdings provides a crucial counterbalance to all the other Canadian-dollar exposure you already carry.

When geopolitical risk hits Canada specifically – whether through trade disputes, commodity price shocks, currency depreciation, or a domestic economic downturn – that 75% international allocation is not just nice to have. It is your financial lifeline.

8. What to Actually Do During Geopolitical Uncertainty

Alright, so you understand the risk landscape and you understand why XEQT is built to handle it. But what should you actually do when the next scary headline drops? Here is my honest, practical advice:

Keep buying. Seriously. That is it. Set up your automatic contributions on Wealthsimple, keep your regular purchase schedule, and do not change a thing.

Here is why:

• Geopolitical crises almost always cause short-term market drops. If you are buying regularly, those drops mean you are picking up shares at a discount. Dollar-cost averaging working in your favour.
• Markets have recovered from every single geopolitical crisis in history. World War II, the Cuban Missile Crisis, 9/11, the Global Financial Crisis, COVID – every time, global markets recovered and made new highs.
• The crisis that destroys your portfolio is the one you are concentrated in. The crisis that barely registers is the one you are diversified across. XEQT ensures you are always in the second category.

What you should NOT do:

• Do not sell. Panic selling during a geopolitical event locks in losses at the worst possible time. Markets tend to drop fast and recover gradually, so by the time you “feel safe” getting back in, you have missed the best days of the recovery.
• Do not try to rotate into “safe” countries. You do not know which countries will be affected next, and by the time a crisis is in the news, it is already priced into the market.
• Do not go to cash and wait it out. The opportunity cost of sitting in cash while you wait for the world to feel stable is enormous. The world never feels completely stable – there is always something to worry about. If you waited for a calm geopolitical environment to invest, you would never invest at all.
• Do not overweight or underweight specific regions. XEQT’s allocation is set by professionals using a combination of market-cap weighting and strategic tilts. Trust the process.

9. Why Timing Geopolitics Is a Fool’s Errand

Let me leave you with perhaps the most important point: even if you could predict geopolitical events perfectly (you cannot), you still could not reliably profit from that knowledge by timing the market. The data on this is overwhelming and humbling.

A frequently cited study shows that if you missed just the 10 best trading days in the S&P 500 over a 20-year period, your returns would be cut roughly in half compared to someone who stayed fully invested. Miss the best 20 days, and your returns become a fraction of what they could have been.

Here is the kicker: the best days almost always happen right next to the worst days. They cluster around exactly the moments of peak fear and uncertainty – the days when geopolitical headlines are at their scariest and every instinct in your body is screaming at you to sell.

If you sold before the worst days to “protect” yourself, you would almost certainly also miss the best days. The math does not work. The cost of being out of the market at the wrong time is far, far greater than the cost of riding through temporary drops.

This is not just theory. Study after study shows that the average individual investor significantly underperforms the very funds they own because they buy high (when things feel safe) and sell low (when things feel scary). The investors who outperform are the ones who set a strategy, stick to it, and let time and diversification do the heavy lifting.

XEQT makes this almost trivially easy. One fund. Every country. Automatic rebalancing. Low fees. No decisions required.

The Bottom Line

Geopolitical risk is real. It is not going away. And in 2026, the list of things to worry about is genuinely long – trade wars, armed conflicts, rising nationalism, supply chain disruptions, currency volatility, and political uncertainty across multiple regions.

But here is what I have learned after years of investing through scary headlines: the investors who win are not the ones who predict the next crisis. They are the ones who build portfolios that can survive any crisis.

XEQT is that portfolio. Forty-nine countries. Twelve thousand stocks. Every major industry. Automatic rebalancing. The global economy has always been messy and complicated and occasionally terrifying. And yet, global stock markets have always gone up over the long run, because human beings keep innovating, building, and creating value – in every country, through every crisis.

Your job as an investor is not to predict which crisis is coming next. Your job is to own the whole world, keep buying regularly, and give time enough time to work its magic. XEQT makes that remarkably simple.

So the next time you are lying in bed doomscrolling through geopolitical headlines – and there will be a next time, because the headlines never stop – take a breath. Remember what you own. And go to sleep.

Your portfolio has it covered.