For investors who are retired or nearing retirement, the turn of the calendar can be a timely moment to reassess portfolios that may not have been adjusted for a changing market environment.
In its 2026 Outlook, Capital Group stops short of urging dramatic portfolio shifts. Instead, the firm emphasizes balance, diversification and income resilience as markets head into a year shaped by both opportunity and risk .
The firm describes a market defined by tension. Advances in artificial intelligence continue to fuel growth, but those same forces have pushed equity valuations, particularly in U.S. technology stocks, to levels that warrant caution.
“We are moving to a more balanced market environment with a broader opportunity set,” Martin Romo, chair and chief investment officer of Capital Group, wrote in the report.
Capital Group’s 2026 outlook points to higher valuations, broader market leadership and renewed income from bonds, signaling a potential moment for retirees to rethink diversification and downside protection.
Markets are broadening – a good sign for investors
That shift matters for retirees drawing income from portfolios. Rather than a market dominated by a narrow group of AI-driven stocks, Capital Group sees leadership broadening across regions, sectors and asset classes. The report points to the resurgence of international equities as evidence. While the S&P 500 gained roughly 18% through late 2025, markets in Japan, Europe and emerging economies posted even stronger returns. Within the U.S., performance has also widened beyond the so-called Magnificent Seven.
For retirees, that backdrop argues against heavy concentration in growth stocks and toward broader equity exposure across styles and geographies, including non-U.S. markets where valuations are lower and earnings growth expectations remain strong.
A market pullback in 2026 would not be surprising
At the same time, Capital Group cautions that with valuations elevated across global equity markets, “a market pullback in 2026 would not be surprising.” The firm notes that periodic declines are a normal part of investing, underscoring the need for portfolios built to withstand volatility .
That view helps explain the firm’s stance on bonds. Fixed income, long overshadowed by equities, is again positioned as a stabilizing force for retirement portfolios. As of late November 2025, the Bloomberg U.S. Aggregate Index yielded about 4.3%, giving high-quality bonds the ability to generate income while also acting as ballast during equity market pullbacks.
Short-term bonds may offer income and defense
For retirees concerned about sequence-of-returns risk, the report highlights short-term bonds as an alternative to cash. As money market yields fall with rate cuts, short-duration bond funds may offer competitive income with less interest-rate sensitivity than longer-maturity bonds. Historically, the firm notes, short-term bonds have outperformed cash during easing cycles.
Dividends can smooth the ride when markets are choppy
Another theme relevant for retirees is equity income. Capital Group says dividend-paying stocks have historically held up better during market declines while still participating in advances. For retirees who still need growth but want to dampen portfolio swings, dividend-oriented equities across U.S. and international markets may offer a practical middle ground between growth stocks and bonds.
Munis: An attractive entry point for strong after-tax income
Taxes also loom larger in retirement. The report flags municipal bonds as an “attractive entry point” after a difficult period, particularly for investors in moderate to high tax brackets. Capital Group points to improving valuations, strong underlying credit quality and the potential for higher after-tax income compared with taxable bonds .
In sum, Capital Group’s message to retirees is not to retreat from markets, but to rebalance thoughtfully. Diversifying beyond U.S. mega-cap growth, rebuilding fixed-income exposure now that yields are higher, leaning on dividends and tax-aware income strategies, and maintaining sufficient ballast may help retirement portfolios navigate a year in which volatility is likely to remain a normal feature of the investing landscape.