New Year, New Positioning: Avoiding Recency Bias in Your Portfolio

December 4, 2025

As we move toward a new year, many investors feel pressure to reposition their portfolios based on whatever performed best over the last several months. That instinct comes from recency bias; our tendency to believe the most recent trend will keep going. It’s like watching a sports team go on a five-game winning streak and suddenly feeling certain they’re unstoppable, even though the season is long, and momentum shifts all the time. The latest results always feel bigger than they are.

The same thing happens in the market. The sector that performs best in one year is rarely the one that leads the next — in fact, over the last 20 years, the top-performing sector has often fallen into the middle or even the bottom half of the rankings the following year. Market leadership rotates far more often than most people expect, which is why leaning too heavily into last year’s winners can unintentionally increase risk instead of reducing it. Pullbacks, shifts in leadership, and short-term ups and downs aren’t signs of trouble — they’re simply part of how markets normally behave.

A new year is the perfect time to realign your portfolio with your long-term goals instead of last year’s headlines. That may mean rebalancing, adjusting risk levels, or simply confirming that your allocation still matches your comfort level and time horizon. Clarity heading into January often matters more than any year-end market move.