As a stock market investor building a retirement portfolio, 2026 has already raised several concerns. Aside from the Autumn Budget impact, new macro uncertainties have also emerged.
From Trump tariffs and stubborn inflation to ongoing geopolitical issues, investors need to think carefully about their FTSE 100 stock picks. But smart sector diversification can help soften the blow and, in some instances, provide opportunties.
After financials surged 51.4% in 2025 and healthcare climbed 25%, certain UK sectors stand out for defensive income and compounding growth. So for investors with a 10-20-year outlook, what looks good right now — and more importantly, what doesn’t?
Finance
Banks and insurers dominated 2025 with significant gains across the board. But with rates set to fall, that narrative could change. On one side, lower rates could boost lending margins and a recovering economy benefits insurance premiums.
However, for big banks, lower rates could hurt revenue from loan interest. Dividend-wise, finance still looks promising (particularly insurers) but banks might see their margins compress.
Consumer staples
When consumer wallets tighten under tariffs and inflation, staples hold firm. Tesco and Sainsbury’s thrive on unbreakable demand for food and household goods — the everyday staples that families can’t skip. Giant multinationals like Unilever also benefit, producing global brands like Dove and PG Tips.
While they lack the high yields of finance, they offer reliable and consistent payouts backed by pricing power. History shows they can weather volatility smoothly, making them cornerstones for 10-20-year compounding.
Healthcare
Healhtcare is typically a defensive sector but it also enjoyed notable growth in 2025. The tailwinds from UK aging trends give the sector long-term sustainability (NHS spend is projected to rise 50%+ by 2040).
GSK stands out, distributing £811m in January dividends alone while funding R&D pipelines beyond patent cliffs. For growth-focused investors, AstraZeneca is another attractive option. Recent drug approvals give the stock long-term earnings visibility.
Utilities
Utilities will likely be my core focus in 2026 for two reasons: geopolitical shielding and regulated revenues (linked directly to CPI).
This provides both defensiveness against tariff shocks and an inflation hedge. National Grid (LSE: NG) remains my core utility holding and I expect further improvements this year. Managing the UK’s main electricity network, it churns out stable, inflation-linked cashflows.
Its dividend yield usually sits around 4% and looks sufficiently sustainable, with an 80% payout ratio and 3.6 times cash coverage. Plus, with a recent £60bn investment into net-zero upgrades, analysts forecast 9%-12% annualised returns to 2030.
Add 25 years of almost unbroken dividend hikes and you can see why this would appeal to investors with a 10-20-year outlook.
The catch is debt, currently looking very heavy at four times EBITDA. That’s risky if rates don’t fall. Ofgem’s 2026 regulatory reset might limit returns to 4.5%-6%, and recent outages already have politicians grumbling about bills.
Final thoughts
The year has already begun with a bang on the geopolitical front and things are rapidly evolving. During such times, it pays to err on the side of caution.
National Grid may not be a growth machine but, in my view, it’s one of the most stable income picks on the FTSE 100. For those aiming to smooth out a potentially volatile year, it’s worth considering.
A diversified portoflio of 10-20 growth and income stocks spanning various sectors is a good strategy to reduce concentration risk.
