In January, many of us turn our thoughts to New Year’s resolutions – such as more exercise, eating less meat or picking up a hobby. These decisions are grounded in an understanding our entrenched behaviours have room for improvement and a hope that motivation – and a bit of hard work – will turn our aspirations into positive outcomes. 
This year, we decided to subject our investment processes to the same scrutiny as our eating and exercise habits.
As with most resolutions, our three 2019 investment resolutions begin with some reflection on what we have been doing so far, an acknowledgement that things may need to change and a commitment to turning our aspirations into concrete actions.
The first thing we need to accept is investors have been lucky – and some of us maybe even a little naughty – in our fixed income allocations. Central bank actions since the global financial crisis have pushed down interest rates across almost all fixed income markets. During this period, generally the greater the risk – whether in terms of duration or credit – the better the returns.
But it is time for change, because those great returns are now the equivalent of your tighter jeans. Interest rates and credit spreads are unlikely to continue to fall, so investors who have taken higher levels of credit and duration risk need to ask themselves whether it is worth maintaining those positions. What is the fixed income part of the portfolio supposed to be doing? It cannot be to generate returns, this is what the equity allocation is supposed to do. What happens if risk assets sell off, and the fixed income allocation loses a substantial amount because it is loaded with risk-seeking – rather than risk-offsetting – positions?
So, for our first New Year’s resolution, we argue investors should be honest with themselves about what they are trying to achieve in their fixed income allocation and adjust it accordingly.
Second, while we inhabit a far more globalised world than even a decade ago, we continue to invest as if each region in the world is an island. Should we overweight Japan and underweight the US this year, for instance? In the past, we could compare what the US market was pricing in about the US economy to what the Japanese market was pricing in about the Japanese economy, then make a choice about Japan versus the US accordingly.
However, things have changed.
If a company is registered in New York, manufactures its wares in Brazil, assembles them in South Africa and then sells them to Chinese consumers, which region are you actually investing in?
In today’s global economy, global investing may make more sense than regional investing. Though the shift will take time to reflect in investment processes, it is our second New Year’s resolution.
Our final reflection concerns currency hedging. Because low and stable interest rates have framed the global investment environment in recent years, currencies have been ignored by investors, who could instead focus on the underlying equity or fixed income markets. But now, some central banks now hiking, others are pausing, and a handful are even cutting rates.
In a world of diverging interest rates, our third resolution for investors is to start taking currency hedging seriously. This is particularly important for investors within the UK, where the currency is very reactive to the outcome of Brexit discussions.
Three New Year’s resolutions to consider in 2019. Hopefully – unlike our half-hearted commitments to running 10k races and cutting out bacon rolls – these ones lead to real change.
At the very least, we hope they prompt some thinking about whether some common investment practices are sustainable or if 2019 is the year for a better approach.
Nick Samouilhan is a solutions strategist for Europe, the Middle East & Africa at T. Rowe Price. The views expressed above are his own and should not be taken as investment advice.