Technology allows you to have 24/7 access to your investment accounts. When you hear about something affecting the stock market in the news, it’s really easy to pull out your phone and “check in” on your portfolio. Research has shown that frequently checking your account can be hurting your performance.
Even if you aren’t making adjustments or changing your allocations, looking at your portfolio too much can be harmful to your investment success.
Checking your account frequently doesn’t just mean checking it daily. Looking at it weekly, or even monthly, can have a negative effect.
What happens when you check your account too frequently?
Your stress increases.
Frequently checking your account will result in more stress. On a daily basis, the stock market is up 53% of the time, and down 47% of the time. If you’re checking your account daily, you’ll see negative numbers almost half the time!
Loss aversion tells us that humans prefer avoiding losses than obtaining a gain.
Because of this tendency, seeing a loss half the time is not equally offset by seeing a gain. The solution is simple—check your account less often.
The chances you’ll see a loss go from 47% to 37% if you check your account only monthly, 31% if you check quarterly, and 23% if you check once each year.
You’re more likely to make changes to your account.
Frequently checking your account may increase the chances of making unnecessary changes to how your invested. If your account is diversified correctly for your goals, the best thing to do is to allow it to work. This means hanging on through tough times.
“The first rule of compounding is to never interrupt it unnecessarily.” -Charlie Munger
Performance chasing is a well-documented phenomenon where investors move money from investments with poor recent performance in favor of those with better recent performance. The problem with performance chasing is that recent performance doesn’t tell us much about the future direction of prices.
When you check your account often, you’ll see some investments that seem to be going up every time you look. Others seem to be constantly losing money. You’ll fall into the trap of thinking the winners will keep winning, while the losers will keep losing. Eventually, you’ll change your allocation. By that time, the recent trends reverse—leaving you with less money.
You’re more likely to invest in less risky assets.
You are likely to invest more conservatively if you check your account too often! Your investments are long-term—you know that. You can afford to take on risk, because you know you will be compensated with higher returns over time.
But when you constantly check your account, you shorten your time horizon. Research has shown this to be true. Focusing on short-term movements cause you to confuse risk with volatility.
Risk can mean the permanent loss of capital, or the chance that you won’t have enough money to hit your goals. Volatility is the ranges of change in price that your investments experience. Short-sighted investors think that volatility is the risk and should be avoided. However, volatility is a normal part of investing that successful investors accept.
Focus on what you can control.
While checking your account seems harmless, there is much more going on beneath the surface than you know. Your success as an investor is literally at risk.
Instead of trying to focus on things you can’t control (short-term market movements), focus instead on what you can control—your allocation, how much you save, and how you interact with your account.
Hiring an investment advisor can help. Instead of worrying about your account, let a trusted advisor take that responsibility. At Stewardship, we can help make sure your investments are working toward your goals, so you can stress less.