While the world waits to find out whether our hopes or fears will be realised in Ukraine, Venezuela and Taiwan this year, stock markets are priced for perfection but braced for shocks. Blaise Metreweli, Britain’s first female head of the Secret Intelligence Service, could have been speaking for investors as much as spies when she said last month: “We are now operating in a space between peace and war.”
Hoping for less of the latter and more of the former, my forever fund aims to grow capital and income whatever happens in 2026. Here are six predictions and investment strategies for this year.
Invest for income
Interest rates will fall, which should make income-yielding assets relatively more valuable. The Bank of England cut its base rate of interest to 3.75 per cent last month and has indicated it hopes to go further this year.
It said: “Spending is weak right now, but inflation is above the 2 per cent target. We said in November that it had peaked and would fall from there. It has since gone down to 3.2 per cent. If inflation stays on track, we should be able to gradually reduce interest rates further.”
Lower returns on cash deposits may increase the market price of shares that pay dividends. Funds and shares with a high dividend yield have been unfashionable for years, as many investors pursued capital growth from “jam tomorrow” stocks that pay low or no income today.
If that trend slows or reverses in 2026, then several overlooked and undervalued forever-fund holdings should benefit. These include Greencoat UK Wind (stock market ticker: UKW), the £2.1 billion renewable energy investment trust that pays annual income equal to 10.2 per cent of its share price at present, and Tufton Assets (SHPP), the £301 million ship leasing investment trust, which yields 9.28 per cent.
Both deliver tax-free income via my Isa, Tufton being its biggest holding, but it is important to be aware that dividends can be cut or cancelled without notice. While the past is not necessarily a guide to the future, Greencoat has increased dividends in line with the Retail Prices Index measure of inflation every year since the fund’s launch in 2013.
Investors’ income increased by an annual average of 7.6 per cent over the past five years, while Tufton shareholders received a 7.4 per cent-a-year increase over the same time, according to independent statisticians Morningstar. If either rate of ascent could be sustained it would double dividend income in a decade.
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Seek out healthy returns
The global population will continue to live longer and become wealthier but often in ill-health. These demographic trends will underpin demand for medical innovation, supporting research and share prices in the healthcare sector.
To be specific, an estimated 57 million people are living with dementia, according to the World Health Organisation. Eli Lilly (LLY), the American pharmaceutical giant that is my sixth-biggest shareholding, and Novo-Nordisk (NOVO), its Danish rival, are developing drugs that are hoped will help to ease Alzheimer’s disease, the most widespread form of dementia.
On a more trivial level, poor eyesight and hearing used to be regarded as inevitable with age. EssilorLuxottica (EL), the Franco-Italian company that makes a third of all the world’s optical lenses, now sells specs that double up as discreet hearing aids.
Shares I bought for €96 in March 2019, as reported here at that time, traded at €265 on Friday, and EssilorLuxottica is now the fourth-most valuable holding in my forever fund. So I bought myself a pair of its Nuance Audio glasses and, as a result, enjoyed noisy Christmas parties more than I had done for years.
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Avoid Trump trouble
America’s unpredictable president, Donald Trump, has forced foreign companies to pay hundreds of billions of dollars more tax to trade in the world’s most valuable marketplace. But higher tariffs and erratic foreign policy have rattled money markets, causing the dollar to lose about a tenth of its value against a basket of other currencies in 2025 — its biggest fall in decades — and to slip 8 per cent lower against the pound.
That’s been bad for this sterling-denominated investor, whose three most valuable holdings are the iPhone firm Apple (AAPL), the tractor-maker Deere (DE) and the burger-flipper McDonald’s (MCD). But a weaker American currency should be good for emerging markets, whose debts and export commodities are usually denominated in dollars.
It’s an ill wind that blows no good, but three of my investment trusts — BlackRock Latin American (BRLA), BlackRock Frontiers (BRFI) and JPMorgan India Growth & Income (JIGI) — may gain from a weaker greenback.
Stick with tech — it will own the future
Artificial intelligence beats natural stupidity in the long run, but short-term shocks look set to hurt speculators. Bubbles will burst among assets with no underlying businesses or profits — such as cryptocurrencies — but new technology companies with real income and profits own the future.
It’s 36 years since I bought my first Apple computer and, in addition to the iPhones mentioned earlier, this business has also made 2.3 billion active devices worldwide, including my AirPods — or earphones, for older readers — desktop, iPad and watch. I expect demand to continue to rise and only wish I had invested sooner, after paying $23.75 in February 2016, allowing for a subsequent four-for-one split, for shares that cost $271 on Friday.
I feel the same way about Microsoft (MSFT), the software giant that sits just outside my top ten, which has bet much more heavily on AI but also has long-established profitable businesses that include Windows (the operating system for most personal computers), Word, Excel and PowerPoint software, plus Azure cloud computing.
Give peace a chance
War in Europe, horrific bloodshed in the Middle East, plus rising tensions between China and Taiwan make the world more worrying today than it has been in living memory. But talks between Trump and Volodymyr Zelensky, the president of Ukraine, give grounds for hope.
One of the most comprehensive and longest-term analyses of stock market investment is called The Triumph of the Optimists. The book’s global scope includes both world wars and the Depression.
Provided none of the above recurs and peace breaks out on the continent, investment trusts that will become big winners will include European Smaller Companies (ESCT) and JPMorgan European Growth & Incomes.
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Hope for the best, prepare for the worst
Stock market investors should never forget the Socratic paradox: all that I know is that I know nothing. Each of the above hopes expressed by this long-term optimist may prove wishful thinking and be dashed by short-term setbacks in 2026.
Even if warfare displaces welfare as the focus for economic activity, then a diversified portfolio of different companies, countries and currencies should ease the pain. However, if the worst comes to the worst, defence-related businesses including BAE Systems (BA.), Boeing (BA) and Seraphim Space Investment Trust (SSIT) may offset losses elsewhere.
There is some evidence this is happening already, with Seraphim shares I bought for 53p in March now trading at £1.26 and soaring into fifth place in my forever fund. But to be candid, I would be quite happy to see all three of my “war stocks” do badly next year. There’s more to life than money.
