Published by Leonardo Calcagno
Building wealth over time requires more than simply buying and holding investments. Right now, we’re seeing record market valuations, with the Canada Stock Market Index (TSX) hitting an all-time high of 31760.82 in December 2025.
However, this comes alongside rising costs that quietly erode purchasing power. Inflation rate hit 2.2% in September 2025, with underlying mixed signals for the investors.
It’s a well-known fact that strong markets and rising costs can create a tricky environment for investors. Certain mistakes can become exponentially more expensive when these forces eventually collide. Let us give you a quick rundown of errors to watch out for.
You Are Diversifying, But Not With Caution
You must have heard it countless times from finance gurus: diversify your portfolio. But what exactly does meaningful diversification look like in practice?
Portfolio diversification with a clear understanding of what you own can protect your wealth far better than random stock picking across sectors. Let us explain how this works in real terms.
Take, for example, the debate of CP vs CNR in the Canadian rail sector. Canadian Pacific Railway Limited (CP) operates one of North America’s major freight networks and is known for its expansive route system connecting key commercial centres.
Canadian National Railway Company (CNR), on the other hand, manages the only transcontinental railway in North America. CP and CNR represent the only Canadian options in this transportation space, and this duopoly will likely continue for the foreseeable future, notes ValueTrend.
So when you invest in both, thinking you’re diversified, you’re placing bets on the same monopolized market structure. Exercise caution with this approach. It’s best to understand the competitive environment before assuming you’ve spread your risk effectively.
Here are some practical ways to diversify with more clarity:
- Look beyond sector labels: Two companies in the same industry can have entirely different business models, customer bases, and revenue streams. Study what drives their profits, not just what category they fall into.
- Spread across true competition: Choose companies that compete with each other rather than operate as regional monopolies or partners in a consolidated market. Real competition means different outcomes during economic changes.
- Consider geographic revenue sources: A Canadian company earning most of its revenue domestically faces different risks than one generating income across multiple continents, even if both operate in the same sector.
- Evaluate correlation during downturns: Review how your holdings performed during past market corrections. If everything dropped together, you’re less diversified than you’d like to think, regardless of how different the companies appear on paper.
You’re Assuming That Global Markets Will Stay Predictable
Many investors build portfolios based on historical patterns, expecting tomorrow to resemble yesterday. This approach overlooks how quickly geopolitical tensions can reshape economic relationships.
Take the example of the ongoing discussions around US tariffs on Canada and Mexico. These trade measures could damage all three economies simultaneously, disrupting supply chains and increasing costs across borders.
Retaliatory actions would only worsen the economic harm, creating a cascading effect that touches multiple sectors. When you assume markets will remain stable, you leave your portfolio vulnerable to sudden policy changes. Global commerce operates through interconnected relationships, and tensions in one area ripple outward.
Follow the strategies below to build more resilience into your investment approach:
- Map your supply chain exposure: Research where your holdings source materials, manufacture products, and generate revenue. Companies with diversified supply chains across multiple regions handle trade disruptions better than those concentrated in single corridors.
- Monitor policy signals early: Trade negotiations and tariff discussions don’t appear overnight. Following economic policy announcements from major trading partners gives you time to assess potential impacts before markets react dramatically.
- Balance domestic and international holdings: Pure domestic companies face different risks than multinationals. A mix of both can help you cushion your portfolio when cross-border tensions rise, since not all holdings move in the same direction during trade conflicts.
You Are Not Timing Your Investments Right
The psychology behind the much-dreaded September Effect is very real. Historically, September has delivered weaker returns than other months, with markets often declining as investors return from summer holidays and reassess their positions.
This pattern creates anxiety that pushes people toward reactive decisions. You might sell in late August, hoping to avoid losses, or hold cash through September, waiting for better entry points.
The problem with it is that these timing decisions rarely work as planned. Markets don’t follow calendars with precision. When you try to outsmart seasonal patterns, you often miss recovery days that happen unexpectedly.
A handful of strong trading days each year account for most market gains. Missing just a few of these days while sitting on the sidelines can dramatically reduce your long-term returns, even if you successfully avoid some downturns.
Here’s how you can approach your investment timing more carefully:
- Use dollar-cost averaging during volatile periods: Instead of investing a lump sum at once or trying to pick perfect entry points, spread purchases across several months. This reduces the risk of buying at a peak and helps you benefit from price fluctuations.
- Set calendar reminders for quarterly reviews: Rather than reacting to monthly market movements or seasonal patterns, schedule regular check-ins every three months.
- Increase contributions during broad declines: When markets drop drastically, consider adding to your positions if your financial situation allows for it. This contrarian approach takes advantage of lower prices instead of fleeing from them as most investors do.
- Ignore market noise between review dates: Daily market commentary creates unnecessary stress and tempts you to make changes based on short-term movements. Between your scheduled reviews, focus on your long-term goals instead of tracking every single fluctuation.
Your Portfolio Deserves Your Attention, Not Your Anxiety
The mistakes we’ve explored share a common thread: they happen when fear or overconfidence replaces careful thinking. Your financial future benefits from regular attention, thoughtful adjustments, and patience with the process.
Markets will continue moving in ways that feel uncomfortable or surprising. What separates successful long-term investors from the rest is their ability to learn, adapt, and stick with sound principles even when emotions suggest otherwise. That’s all.