Don’t Look At Your Portfolio!

Retirement, Income, Tax & Estate Planning.

Don’t Look At Your Portfolio!

September 28, 2016 Investing Newsletter 0

Again the markets have been on a roller-coaster ride over the past 10 days. A few market analysts say the market is tracking the polls. For whatever reason, Wall Street seems to feel Hillary is a safer bet so when the polls started closing and Trump was edging past her, the market went down. After the first debate, the market rallied on Tuesday. Welcome to the world of high finance.

So here’s the question…how often should you take a look at your market portfolio? According to a recent column in the Wall Street Journal, the answer may be “never”. Why?

In his column (read here), Charles Rotblut, president of the American Association of Individual Investors (AAII), says that while we might want to look at our portfolio when market conditions are good – to gloat in our success – it can be dangerous. It can even be more dangerous than looking at our portfolio when the market is bad, something he says is also bad.

By his logic, looking at our gains in bull markets makes us think we’re more risk-tolerant than we actually are. We’re ready to put money at risk when it’s making money – we don’t really factor in that we might lose money in the next bear market. Secondly, he says we shouldn’t look when the market is down due to “anchoring” – where we latch on to the best performance/best numbers we’ve ever had and judge everything else by it.

If you start with a quarter, get it up to a dollar and a bear turn takes it down to $.75, anchoring prevents you from seeing the $.50 you’ve gained, only the quarter that you lost.

So we shouldn’t look when it’s high because it’ll encourage risky behavior, and we shouldn’t look at it when it’s low because we’ll get upset about how good our balance used to be. But if you are going to look, Rotblut cautions, you shouldn’t look too frequently. He references a study performed by The Journey of Wealth Management that showed no perceptible volatility when stocks were monitored monthly, but a gradual rise in volatility when stocks were monitored daily.

He ends the article by claiming to only look at his retirement accounts biannually, and quotes Vanguard Group’s founder Jack Bogle who said you shouldn’t look at your savings until the day you retire (note: you should absolutely not wait until the day you retire to see what you have saved!). But whatever your observation frequency, remember that long-term investing is a journey, not a quick trip. If you keep looking back, you’ll lose sight of what’s ahead.