As investors, our success is determined by the limits of our knowledge and psychology, and their ability to bail us out when volatility is high and conviction is low. But it’s a fantasy to suppose that anyone comes out unscathed during their time in the markets.
This article is a journalistic opinion piece written based on independent research. It is intended to inform investors and should not be taken as a recommendation or financial advice.
This is because money is a conduit to making our dreams come true, tying it inescapably to our deepest desires and willingness to act in pursuit of them, even if we may not have the wherewithal to work through investing’s often jargon-heavy fundamentals to do the best job possible.
The key is to minimize the tuition we pay on the road to investing enlightenment, knowing that the journey is never-ending and that progress is necessarily incremental, requiring us to always be on the lookout for a more efficient and/or cost-effective strategy than the one we’re implementing.
7 New Year’s resolutions that will make you a better investor
As temperatures drop and the Christmas holiday ramps up into full swing, readers will quickly recognize that New Year’s resolutions pair rather well with investing’s iterative nature, imperfect by design, offering opportunities to reinforce how crucial it is to keep an open mind and move past the mistakes you will inevitably stumble upon as you put money to work.
In the interest of auditing your portfolio’s alignment with your financial goals, let’s take this opportunity for a quick survey through seven New Year’s resolutions, derived from investing fundamentals, guaranteed to make you a better investor in 2026. Here they are, in no particular order:
- Have a heart-to-heart with your home country bias.
- Take diversification seriously.
- Figure out your FI number and modify your contributions accordingly.
- Maximize tax savings through asset location.
- Maximize your time horizon through an emergency fund.
- Revisit your comfort zone on the active/passive investing spectrum.
- Sidestep FOMO by tapping into your contrarian side.
1. Have a heart-to-heart with your home-country bias
We’ll begin our look at investing New Year’s resolutions with the phenomenon of home-country bias, or the tendency to invest disproportionately in your home country, well beyond its share of global market capitalization, because of feelings of comfort and familiarity, to the detriment of long-term returns.
A study by Vanguard shows the bias, seen all over the world, to be especially prevalent in Canada, with portfolios averaging a 50 per cent allocation to Canadian stocks, despite the country representing only 2.6 per cent of the global stock market, opening investors up to industry over-concentration and higher volatility without commensurate returns. The firm recommends a 30 per cent allocation as a more viable pathway, balancing volatility with potential returns.
In terms of the remaining 70 per cent of your portfolio to be invested internationally, recommendations abound, often in conflict with one another, but the consensus hovers around 40 per cent US stocks, 20 per cent Developed International stocks and 10 per cent Emerging Markets stocks, aiming to reflect the US’s status as the world’s largest source of stock market activity, while respecting the contributions of Europe, Japan, Australia and emerging economies, such as China and India, to the global industrial complex.
Here’s an example allocation from a fund run by Dimensional Fund Advisors, whose data driven approach to maximizing returns has made it one of the most successful investment firms of all time.
2. Take diversification seriously
The overconcentration of home-country bias leads us into the merits of diversification, or spreading your portfolio across asset classes, such as stocks, bonds and cash, to set you on the smoothest course towards your ideal life, potentially including home ownership, starting a family, starting a business and/or enjoying the retirement you deserve. Here’s a framework to give you the right perspective when it comes to diversification:
- Money your need in 10 years or more should be in stocks, because they offer the highest potential long-term return among asset classes, based on more than half a century of solid data supporting about a 5.2 per cent annualized return after inflation.
- Money you need in 3-5 years should be in bonds or certificates of deposit to ensure some capital appreciation, while minimizing your exposure to a potential drawdown, which you can measure by a bond fund’s weighted average duration. For every 1 per cent change in interest rates, the fund will move in the opposite direction by a number of percentage points roughly equal to its weighted average duration. Take a look at BMO’s Aggregate Canadian Bond Index ETF, one of the most popular for Canadian bonds, currently paying out about 3.5 per cent in annual interest before inflation.
- Money you need in 3 years or less should ideally be kept in cash in a high-yield savings account, likely earning you less than bonds, but guaranteeing you no volatility to ensure you can make your payment according to plan.
Keep this timeline in mind, coupled with geographical diversification discussed in the home-country-bias section, and you’ll be simultaneously maximizing returns and exposing yourself to only as much risk as your goals require, which is a tidy way to sum up responsible investing.
3. Figure out your FI number and modify your contributions accordingly
A useful carrot to dangle in front of your nose as you grow your portfolio is your Financial Independence of FI Number, or the estimated amount of money you need to officially stop working out of necessity and enjoy financial freedom, or the ability to do what you want with your time. To calculate your FI number, a little math and a little imaginative work is required:
- Let’s start with imagination, allowing yourself to picture how you’d spend your time if you didn’t have to worry about money. Where would you travel? What would you have for breakfast? What would Wednesday afternoons look like? Are there any major projects on the docket you’re fixing to sink your teeth into that work has only allowed you to chip away at? Get granular with it and be true to your personal brand of happy.
- Now to the math. Come up with an approximate figure for how much yearly capital you’d need in retirement, whether it remains stable, increases or decreases over time, to match what you’ve just imagined. Now multiply the figure by a reasonable estimate of the years you’ll live from retirement to taking your earthly leave. That’s your FI Number.
Whether it’s C$500,000 because you plan to never stop working or C$5 million because you plan on handing in your resignation in your 50s, there’s no wrong answer, so long as it’s aligned with your vision of the good life.
Even if your investing has involved the mindless accumulation of capital up until this point, it isn’t too late to determine where you’re headed and get your savings on course.
4. Maximize tax savings through asset location
An important step towards optimal investing Canadians are underutilizing is the practice of asset location, or owning investments in accounts – such as the non-registered account, Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA) – strategically chosen for their tax advantages to help you avoid leaving gains on the table.
A taxable, or non-registered account, requires you to pay taxes on any capital gains you earn. In the case of Canada, you’re expected to add half of your gains to your income in the year of the sale, but can cancel these out with any capital losses you claim. Most investors use taxable accounts when they run out of contribution room in their RRSPs and TFSAs, whose tax incentives usually grant them priority in most investors’ lives.
An RRSP allows you to deduct every dollar you contribute from your income taxes, subject to a yearly limit. The catch is that the account is designed to favor withdrawals, considered taxable income, only when you’re ready to retire. This requires the conversion of your RRSP into a Registered Retirement Income Fund (RRIF) that will pay you out yearly until exhausting your funds in the year you turn 95.
Because RRSP contribution room is tied to your income, and once used, there’s no way to get it back – unlike the TFA below – it’s advisable to use the account to invest in assets with the highest probability of compounding returns over the long-term – in other words, stocks – without undo exposure to the risk of total capital losses – commonly encountered in venture investments – ensuring you have an adequate safety net when it’s time to retire.
Finally, the TFSA, a veritable free lunch for Canadians, keeps all gains in investors’ pockets, subject to a yearly contribution limit, with no tax obligations of any kind tied to the account. What’s more, Canadians 18 years and older have access to all contribution room authorized by the Government of Canada since the TFSA debuted in 2009, a total of C$102,000 as of 2025, and you regain any room used in a given year once January 1st comes around.
Thanks to the TFSA’s renewable and tax-free nature, the account lends itself to higher-risk opportunities, whose potential for higher rewards, should it prove unfounded, can be recovered from with new room more conservatively allocated the following year.
5. Maximize your time horizon through an emergency fund
While building a diversified portfolio aligned with your financial goals is all well and good, it will all be for naught if you have to sell your investments too early for reasons unrelated to those goals, including the inevitable emergency that crops up every now and again.
As insurance against interrupting compound interest before it makes sense to, many investors keep an emergency fund with enough cash to cover a surprise car repair, health scare or appliance replacement, or to tide them over, typically for 3-6 months, should they get laid off.
The goal with an emergency fund is not capital appreciation, but quality of life preservation, allowing you to get back on your feet, on your own time, without having to dip into credit cards or your portfolio to cover basic expenses.
If you don’t have an emergency fund and are compelled to make one your New Year’s resolution, don’t worry about saving it all at once. Simply set an attainable by-weekly goal and work your way up, however long it takes. Your future self, 20 or 30 years deep into your investing journey, will undoubtedly be thankful that you did.
6. Revisit your comfort zone on the active/passive investing spectrum
Another value-added move apt for a New Year’s resolution is reassessing your portfolio in terms of active investing, whose goal is to best the performance of a benchmark market, and passive investing, whose goal is to replicate that benchmark’s performance through the use of index funds.
You may not know the percentage of your investments on either side of the divide, but that’s easily determined by consulting the objectives of the stock and bond funds you own, which are obliged to state, in some form or another, whether or not they’re tracking indexes or trying to outperform them.
If you’re an investor in individual stocks, the process is even easier, as this automatically means you’re an active investor. Why else would you go to the trouble of learning about companies, combing through their financial statements and MD&As, if not to do better than the simple task of buying into a globally diversified portfolio of index funds?
The key point to remember about active and passive investors is that, over the long-term, the former outperform the latter on average less than 20 per cent of the time – including less than 3 per cent for Canadian active investors over the past decade, according to S&P Global’s SPIVA Report – making it a mighty tall order to post a better return than your home market.
If you consider yourself skilled enough to build conviction in an active fund or single stock, such that you’re able to endure bouts of extreme volatility knowing the data is in your favor, be my guest, I’m certainly within that camp.
Just make sure you’re comfortable with the idiosyncratic risk that hangs over every publicly traded company; namely, the potential to go belly up and cease to be a going concern, while your exchange-traded fund tracking the TSX Index, representing the publicly traded portion of the Canadian economy, simply boots a company from the portfolio, should it underperform its way out of the index, making way for the next company in line that fits the index’s predetermined parametres.
7. Sidestep FOMO by tapping into your contrarian side
We end our romp through worthwhile New Year’s resolutions with a few words about how markets reflect human nature and create opportunities for investors to gain an edge, if they learn how to look through this reflection for potential bargains that lie beneath.
First and foremost, a stock price, at any given moment, represents today’s view about the value of future cash flows. This view will change based on new information introduced into the discussion, for example an earnings miss or beat, a new product that flops or catches on, or a change in management, but will always remain future-facing.
Often, upon reaching a certain threshold of investor awareness, the market’s opinion of a company will be subject to what is called herd mentality – colloquially known as Fear of Missing Out (FOMO) – or the tendency of investors to overreact to a piece of news, to the upside or the downside, simply because everyone else is doing it, temporarily distorting a company’s valuation, even though the news does little to harm its long-term prospects.
It’s during these instances that contrarian investors earn their keep, accustomed as they are to search for high-quality stocks weighed down by pessimistic sentiment, which their research may prove to be undeserved. The same can be true for entire sectors or country-wide indexes, such as the TSX or S&P 500, creating the conditions for a value investment that may turn out to have been an intelligent decision once the mania subsides, earnings normalize and profitable growth takes over as the chief driver behind long-term sentiment.
The bottom line on investing New Year’s resolutions
While investing is part art and part science, there are fundamental tenets that ensure a responsible approach to putting money to work, seven of which we’ve discussed in this article, each of them tied to alignment with your financial goals, current means, risk tolerance and investment knowledge.
Regardless of the portfolio moves you make in 2026 and beyond, keeping this personalized perspective front-and-centre is the surest way to make your time in the markets as merry as possible.
Join the discussion: Find out what New Year’s resolutions investors are planning for 2026 on Stockhouse’s stock forums and message boards.
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