Have you been peeking?
Checking your investments. Such fun. With just a click or two, you can see what’s up and what’s down. The bright green confirming your choices, stoking mirages of early retirement, days on the beach and freedom moving closer. The panicky red graphs conjuring temporary despair, years more of daily grind and a second career as a Walmart greeter. The drama plays out in a river of dopamine as your body savors the rush of the latest set of numbers and charts. But is there a real benefit checking your investments? And how often is too often?
There’s really not much to see and even less to change
Good investing should be boring over the short term. Earning a consistent 10% return would be viewed as beating the market and earning, say, 12% over time would be truly remarkable long term results. At 12%, your money doubles every six years. Doubles!
But even 12% a year is only 0.004% a day. Thats really not much to see. It’s a bit like watching cold beer evaporate on a hot afternoon. And just as wasteful. Worse still, all of this checking can lead to bad things, like making changes to a perfectly good portfolio.
It reminds me of the old joke that the factory of the future will have just 2 employees. A man and a dog. The man is there to feed the dog. The dog is there to make sure that the man doesn’t touch anything.
In the world of investing, think of yourself as the man. If you have an advisor, part of their role is to be the dog. If the (investment portfolio) factory is set up properly in the first place, there isn’t much to watch and even less to tweak and change. Most of us need that dog watching over us. Stopping us from checking our investments too much. Ideally biting us on our mouse hand before we log in and change something!
Why investments fluctuate
Investment values change as market sentiment shifts. Company management changes. Political policies shift. A strong quarter comes in above expectations. A weak quarter comes in below plan. The overall market drops as fears rise over interest rates or inflation. Meanwhile, what exactly happened to your investment? Most likely nothing. The red graph of despair calls you to hit the sell button. The next day, the graph glows green and a feeling of wellness resumes.
When you are checking your investments on any given day, some stocks will be up, others will be down. Lots of red and green. It means nothing. Just noise.
The color of fear and greed
If you look at a particular stock you might see something like this:
Ugh! Bright red. Fear! Panic! Should I sell now>. Why did I buy this dog?! How much have I lost? What to do now? How much further is this thing going to fall?!
Or you might see something like this:
Wow! Bright green!. Greed! How much have I made? Why didn’t I buy more! So smart that I picked this stock. I really am an investing superstar.
Those are actual stock charts and in fact, they are of the same stock, in this case Accenture. The first one shows the last few days of the stock while the second one shows the last 20 years. The first chart tells us nothing about the company. The second chart doesn’t predict anything, but it shows a long term pattern of growth.
Accenture stock has averaged close to 16% annually over the last 20 years. If you held Accenture over the long haul, you would have enjoyed that 16% growth. Hopefully not selling when it dropped during 9/11 or the 08/09 financial crisis or during its big fall as Covid became a reality. Pick a few quality stocks and look at their charts over a short period of time and then again over a long period of time. You will see a similar pattern.
Here are some more thoughts:
- If you owned a business, how often would you spend money to have it valued, and for what purpose? The likely answer is only if you are planning to sell or merge. When you own shares in companies, you own a piece of those businesses. You have placed your trust in their employees to grow their business. Let them do their thing.
- You should have an asset allocation model for your age, stage and risk level. Rebalance quarterly to get back to your planned allocation.
- If you look too frequently, you will fall into the trap of having your moods dictated by the daily ups and downs of the markets. Over the long haul, markets rise by about 8% a year. On any given day or week, they could be up or down, there is no meaning in that.
- By checking your investments too often, you will be tempted to buy or sell by share price movements or by news on a holding or on a stock you are considering. Most of the time you will be wrong with those moves and you will pay a price in missed opportunity and wasted transaction costs.
- Occasionally, you may have holdings whose circumstances have changed and it may be prudent to reduce your exposure. You can guard against that by holding broad ETFs, only blue chip stocks and bonds or by having a qualified professional manage your account. If you hold individual stocks, ensure that you are well diversified by geography and industry. Dividend aristocrats (25 year rising dividend companies) may also be a good choice since they tend to be high quality companies with solid returns and growing dividends. Automatically reinvesting those dividends helps reduce risk by dollar cost averaging new purchases. More on this here.
In summary, build a well diversified portfolio of quality stocks, bonds and ETFs that matches your risk profile. Rebalance every quarter. The employees at all of those companies are busy working to grow the company and create more value. Let them do their job! Invest wisely then enjoy your life. Pursue your passions. Enjoy the days. Help others.
Disclosure: I hold a position in Accenture. Nothing in this post should be construed as specific investing advice, just as general information. Investors should do their own research prior to investing.