How a Canadian Recession Would Affect Your XEQT Portfolio (And Why That's OK)

I was at a barbecue last weekend and the mood was noticeably different from a couple of years ago. Instead of talking about house prices going up and crypto portfolios, the conversation was all layoffs, mortgage renewals, and whether we are heading into a recession.

My brother-in-law pulled me aside. “I have about $80,000 in XEQT,” he said, looking worried. “Should I sell before things get worse? I keep reading that a recession is coming.”

I told him what I am about to tell you: if you hold XEQT and a recession hits, your portfolio will go down. That is the honest truth. But it will also recover, and if you keep investing through it, you will come out significantly wealthier on the other side.

The headlines about a Canadian recession are louder than they have been in years. Let me walk you through exactly what would happen to your XEQT portfolio if a recession materializes – and why the right move is probably the opposite of what your gut is telling you.

1. The Recession Signals in Canada Right Now

Let’s be honest about where things stand in spring 2026. The Canadian economy is showing real stress:

• Consumer debt is at record levels. Canadian household debt-to-income ratios remain among the highest in the developed world. Mortgage renewals at higher rates are squeezing millions of homeowners.
• Housing has cooled significantly. After years of unsustainable price growth, home sales and prices have pulled back in most major markets. Construction activity is slowing.
• Trade tensions are elevated. Tariff uncertainty with the US – Canada’s largest trading partner by far – has dampened business confidence and investment.
• Unemployment has ticked up. The labour market, while not collapsing, is showing signs of softening. Job growth has slowed and the unemployment rate has been gradually rising.
• Interest rates, while coming down, are still restrictive. The Bank of Canada has been cutting rates, but the cumulative tightening from 2022-2023 is still working its way through the economy.

None of this means a recession is guaranteed. Economic forecasting is notoriously unreliable, and soft landings are possible. But the risks are real and it is reasonable to think about how your portfolio would handle a downturn.

2. What Actually Happens to XEQT in a Recession

XEQT holds approximately 12,000 stocks across the globe with this approximate allocation:

• ~45% United States
• ~25% Canada
• ~20% International developed markets (Europe, Japan, Australia, etc.)
• ~10% Emerging markets

In a Canada-specific recession, here is the critical thing to understand: only about 25% of your XEQT portfolio is directly exposed to the Canadian economy. The other 75% is spread across the rest of the world, which may or may not be experiencing the same economic conditions.

This is fundamentally different from holding Canadian bank stocks, Canadian REITs, or a Canada-focused fund. If Canada enters a recession while the US economy holds up (which has happened before), most of your portfolio continues humming along.

Scenario analysis: What different recessions look like for XEQT

The key takeaway: a Canadian recession hurts XEQT much less than it hurts a Canada-heavy portfolio. Global diversification is doing exactly what it is designed to do.

3. What Past Recessions Can Teach Us

XEQT was launched in 2019, so it has only been through one major crisis (COVID in 2020). But we can look at what an XEQT-equivalent globally diversified portfolio would have done in past downturns:

Every single one of these recoveries happened. Every one. The investors who stayed the course – or better yet, kept buying – came out ahead.

4. The Math of Staying Invested vs Timing the Recession

Let’s say you are convinced a recession is coming and you want to sell your XEQT to avoid the drop. Here is the problem: to successfully time the market, you need to be right twice. You need to sell before the decline, and you need to buy back before the recovery.

Let’s run the numbers with a $100,000 XEQT portfolio:

Scenario A: You stay invested

• Portfolio drops 25% to $75,000
• You keep your automatic $500/month contributions
• Market recovers over 2 years
• After 3 years: ~$125,000 (original recovery + contributions at discounted prices)

Scenario B: You sell and go to cash, perfectly timing the bottom

• Sell at $100,000
• Market drops 25%
• You buy back at $75,000, pocketing $25,000
• After 3 years: ~$138,000
• Gain vs staying invested: ~$13,000

Scenario C: You sell but miss the bottom by 3 months (the realistic scenario)

• Sell at $100,000
• Market drops 25% then recovers 15% before you buy back
• You buy back at $86,250
• After 3 years: ~$117,000
• Loss vs staying invested: ~$8,000

Scenario D: You sell and the recession never happens

• Sell at $100,000
• Market goes up 10% while you wait for a crash that doesn’t come
• You buy back at $110,000 (or keep waiting and fall further behind)
• Loss vs staying invested: $10,000+ and growing

The research is overwhelming on this. Dalbar’s annual studies consistently show that the average investor underperforms the market by 3-4% annually, primarily because of mistimed selling and buying. Missing just the 10 best days in the market over a 20-year period cuts your returns roughly in half.

You do not need to time the market. You need time in the market.

5. Why XEQT’s Global Diversification Is Your Recession Shield

Here is something that gets overlooked in the recession panic: Canada’s economy is only about 3% of global GDP. When you hold XEQT, 75% of your money is invested in companies that do not particularly care whether Canada is in a recession.

Apple does not rely on Canadian consumer spending. Toyota does not depend on Canadian housing starts. Samsung, Nestlé, LVMH, TSMC – these companies serve global markets and can thrive even if Canada’s economy contracts.

Even within Canada, XEQT’s Canadian holdings are heavily weighted toward:

• Big banks (Royal Bank, TD, BMO) that have survived every Canadian recession in history and continued paying dividends through all of them
• Resource companies (Enbridge, Canadian Natural Resources) that are tied to global commodity prices, not just Canadian demand
• Shopify and other tech companies that derive most of their revenue internationally

A Canadian recession is a local event in a global portfolio. It hurts, but it does not define your returns.

6. Dollar-Cost Averaging: Why Recessions Are Actually a Gift

I know this sounds counterintuitive when your portfolio is bleeding red, but hear me out: if you are still in the accumulation phase (regularly adding money), a recession is one of the best things that can happen to your long-term wealth.

Here is why. When you invest $500 per month into XEQT:

During a recession, your regular contributions buy more shares at lower prices. When the market recovers – and it always has – those cheap shares deliver outsized returns. This is dollar-cost averaging in action, and it works best when markets are down.

An investor who started putting $500/month into XEQT in January 2020 – right before the COVID crash – would have bought cheap shares all through March and April 2020. By the end of 2020, they were sitting on significant gains precisely because they bought during the panic.

The worst thing you can do during a recession is stop contributing. Every contribution during a downturn is a future windfall.

7. What NOT to Do If a Recession Hits

Based on every recession in history, here are the moves that destroy wealth:

Do not panic sell

Selling after a 20-30% drop locks in your losses permanently. You are selling low and will almost certainly buy back higher. This is the single most destructive thing investors do.

Do not switch to GICs or savings accounts

GICs at 3-4% might feel safe during a crash, but they guarantee you will miss the recovery. Markets have historically bounced back faster than most people expect. By the time you feel “safe” enough to re-enter the market, you have missed most of the gains.

Do not try to get clever with sector rotation

“I’ll sell XEQT and buy defensive sectors” or “I’ll switch to gold” or “I’ll buy the dip in crypto” – these are all forms of market timing in disguise. You are guessing, and the odds are against you.

Do not stop your automatic contributions

This is the opposite of what you should do. Your automatic contributions are buying discounted shares during a recession. Turning them off means you miss the opportunity that downturns create.

Do not check your portfolio daily

During a recession, checking your portfolio every day is emotional self-harm. The daily fluctuations mean nothing for a long-term investor. Check quarterly at most. Better yet, just look at your balance once per year.

8. Real Numbers: $50,000 Invested Before the 2020 Crash

Let’s look at a concrete example. Imagine you invested $50,000 in XEQT on February 19, 2020 – literally the worst possible timing, right at the pre-COVID peak.

Total invested: $50,000 + ($500 x 70 months) = $85,000 Portfolio value by end of 2025: approximately $105,000+

Even investing at literally the worst time possible, you are ahead. Significantly ahead. And the monthly contributions during the crash are a big part of why.

9. How a Canada-Only Recession Differs from a Global One

This is an important distinction. Not all recessions affect XEQT equally:

Canada-only recession (like 2015 oil crash):

• Canadian stocks drop, but only 25% of XEQT is Canadian
• US and international stocks may continue growing
• Your total portfolio decline is cushioned significantly
• XEQT might drop 5-10% while Canadian stocks drop 20-30%

North American recession:

• Canada and US both contract
• ~70% of XEQT is affected (US + Canada)
• International and emerging markets may partially offset
• Expect a 15-25% portfolio decline

Global recession (like 2008 or 2020):

• Everything drops
• XEQT could fall 25-40%
• But it also recovers in full, every time
• This is the stress test that global diversification is designed for

The current Canadian recession fears are more of the first type – a Canada-specific economic slowdown driven by domestic factors (housing, consumer debt, trade tensions). If the US economy remains relatively strong, XEQT investors will be much less affected than investors with Canada-heavy portfolios.

10. Your Recession Action Plan

Here is exactly what to do, whether a recession happens or not:

If you are currently invested in XEQT:

1. Keep your automatic contributions running. Do not skip a single one.
2. Do not sell. Seriously. Close the app if you need to.
3. If you have extra cash (emergency fund is topped up, no high-interest debt), consider increasing your contributions. Buying more during a downturn accelerates your wealth building.
4. Reframe the narrative. A recession is not your portfolio “losing money.” It is stocks going on sale. You are buying assets at a discount.
5. Revisit your timeline. If you are 20+ years from needing this money, a recession is statistically irrelevant to your outcome.

If you have not started investing yet:

1. A recession is arguably the best time to start. You are buying at discounted prices from day one.
2. Open a Wealthsimple account and start with whatever you can afford.
3. Set up automatic contributions – even $50 or $100 per month.
4. Buy XEQT and let global diversification and time do their thing.

If you are close to retirement (within 5 years):

1. This is where having a glide path matters. If you are still 100% XEQT within 5 years of retirement, consider shifting some into bonds (XBAL, ZAG).
2. Have 1-2 years of expenses in cash or GICs so you do not need to sell XEQT during a downturn.
3. Delay retirement by a year or two if possible rather than selling equities at a loss.

Final Thoughts

Recessions are a normal part of the economic cycle. They have happened roughly every 7-10 years throughout modern history, and they will keep happening. If you plan to invest for 20, 30, or 40 years, you will live through several of them.

The question is not whether a recession will affect your portfolio. It will. The question is whether you will let it derail your plan.

Here is what I told my brother-in-law at that barbecue: “Your $80,000 in XEQT might temporarily become $60,000 in a recession. That will feel terrible. But if you keep investing $500 a month through it, in five years you will be grateful the recession happened because you bought so many shares at a discount.”

He took a sip of his beer, nodded, and said, “So just keep going?”

“Just keep going.”

That is the entire strategy. Not because recessions are fun or painless – they are not. But because the alternative – selling low, sitting in cash, waiting for “the right time” to get back in – has a near-perfect track record of making things worse.

XEQT gives you 12,000 companies across 49 countries. Some will struggle in a recession. Others will thrive. All of them, collectively, will recover and grow. They always have.

Your job is simple: keep buying, keep holding, and let the world economy do what it has done for the last century – grow.