The war that the United States of America and Israel launched against Iran at the start of this month has comprehensively changed the investing landscape. Many ASX shares that were previously expecting to have a relatively smooth 2026 are now wargaming the supply of their most basic inputs – energy. Investors with ASX share portfolios would be forgiven for wondering how to chart a course forward.
Of course, the energy shock that has resulted from this war is still reverberating through the global economy. We don't yet know whether the Strait of Hormuz will be closed for another day or another year.
What we do know is that things will be different, in both the Australian and global economies, for a while.
So how do we account for these differences in our own ASX share portfolios?
Well, I think there are three things investors can do.
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Three ways to position an ASX share portfolio for 2026
Firstly, ASX investors can focus on finding and owning shares of companies that possess a moat, or an intrinsic competitive advantage that can protect them from inflation, recessions, and other potential economic maladies in 2026. 'Moats' are a concept initially coined by legendary investor Warren Buffett, who only tends to buy companies that he thinks possess at least one wide moat. This could be a cost advantage, a powerful brand that inspires loyalty, or else making a good or service that investors find difficult to avoid buying.
Companies that possess these moats are usually the most resilient in the markets. They tend to survive the bad times and thrive when the global economy is booming.
Secondly, investors can take advantage of higher interest rates. Few Australians get excited when the Reserve Bank of Australia (RBA) lifts rates, as it did at the start of this month. But while higher rates make loans and mortgages more expensive to service, they also increase the returns of cash and fixed-interest investments. With term deposit rates now above 5%, there's nothing wrong, at least in my view, with parking your surplus cash in the bank rather than the share market if you are worried about where things might go next. After all, the interest rate on a term deposit is completely safe, unlike an investment in any ASX share.
This time it's different?
Finally, and this might be tough to hear, investors might want to prepare for a rough 2026 by lowering their expectations. The past few years have been exceptionally lucrative for stock market investors. To illustrate, as of 28 February, the iShares Core S&P/ASX 200 ETF (ASX: IOZ) has averaged 12.15% per annum over the past three years, and hit 16.2% for the preceding 12 months. Those are uncommonly high returns for a simple ASX index fund. The longer-term average sits closer to 8% per annum.
I'm a firm believer in the enduring tendency for investing metrics to regress to their mean. As such, I wouldn't be surprised to see a return of well below 12% for the ASX 200 in 2026, and possibly in 2027 and beyond as well.
