The increased use of investment apps has raised investors’ urge to know how they’re fairing in the stock market. While monitoring is crucial to an investment, it can sometimes lead to frustration. How? It can be distressing when you watch your portfolio balance take a downturn. The immediate move would be to withdraw your funds from the market as a damage control measure.
Sadly, this emotional investing can cause more harm than good. It deters you from making long-term investments that can give you bountiful returns. So, how often should you check your investments?
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This article comprehensively answers this question and other related ones.
Why Do You Need to Check Your Investments Regularly?
Checking your investments regularly is essential for the following reasons:
- Easy portfolio rebalancing
- Maintaining the appropriate risk level
- Reaffirm investment strategy
1. Easy Portfolio Rebalancing
In the stock market, some of your investments will perform better than others. Consequently, your portfolio might be concentrated on the best performers, exposing you to greater risk than you could have otherwise been exposed to.
For that reason, you must regularly monitor your account balances to determine if your portfolio needs rebalancing to maintain your preferred asset allocation and diversification.
Portfolio rebalancing means returning your asset mix to the pre-determined mix or asset allocation of stocks, bonds, cash and other assets.
2. Right Risk Level Maintenance
Checking your investment lets you confirm that you’re constantly exposed to the correct risk levels. A mix of higher-risk investments has the potential to yield better returns and safer investments, and thus, the risk you can take varies from time to time.
No investor wants to face a investment portfolio downturn as they draw closer to the time they need income from their investments. You should check your portfolio regularly to ensure it aligns with your current risk tolerance.
Asset allocation is the percentage mix of stock, bonds and cash in your portfolio and typically is created in line with the timeline of your goals and risk tolerance. Conservative investors, uncomfortable with risk need fewer stocks and more cash and bonds. Younger investors, comfortable with a more volatile investment portfolio will typically own a greater percentage of riskier stocks and fewer bonds and cash.
Despite the recent stock and bond market drop, it’s unusual for both asset classes to decline in tandem. More bonds and cash will normally help temper your overall portfolio decline when the stock market takes a tumble.
3. Reaffirm Investment Strategy
Even if you want to maximize your wealth buildup possibility by investing for the long term, you might be tempted to sell your assets if their performance in the stock market dips. Hence, checking your investment after every few months re-affirms your confidence in your investment companies to determine whether they have solid future potential.
It’s also important to make sure that all of your goals are reflected in your investments. For example, money that you might need next year for a vacation should be invested in a liquid money market or high yield cash account. While money for your retirement is best invested for the long term in a stock heavy portfolio which might also include a smaller allocation to bonds and other asset classes.
Why Checking Your Investments Every Day May Lead to Losing Money
It’s undeniable that you should regularly check your investments, but by regularly, we don’t mean checking them every day. Understandably, you’d like to check your investments daily because it’s your money. But you’ll likely lose money if checking your investments every day leads to frequent trading.
Very rarely does an investment have a steady rise. The stock market is volatile— It goes up and down hourly. For this reason, the investments performance should not be determined by its daily performance but by how it performs over a more extended period.
By checking the performance of your investments day by day, you will likely lose money. Here’s how over-checking your investments may play out: First, you buy the investment. Next, you watch the price fall. Finally, you get scared and sell. In the end, you lost money. If you do this too frequently, you’ll overreact to market movements and sell low. You’ll also rack up excess trading costs. And you’ll miss the upswing as the investment reverses and outperforms.
There’s a term for people who do this called “nervous nellies.” A “nervous nelly” is a popular term for a person uncomfortable with the perceived risks associated with being an investor. When the market goes up, they’re elated. When the market goes down, they are petrified. When “nervous nellies” check their stocks too much, they get afraid and bail out because of the stock market’s volatility.
The Answer: How Often Should I Check My Stocks?
It’s prudent to check your investments periodically. However, too much checking can lead to panic and prompt you to sell on a small price blip. If over-checking causes trading, then trading causes over-selling and subsequent lower investment returns. Too much trading leads to lower returns than picking a sensible investment strategy and sticking to it.
The online Money Magazine’s Money 101 course recommends checking investments once a year in response to the question, “How often should I check my investments?”
Consumer Reports.org, in “Why You Stink at Market Timing,” also agrees with the less is more theory of too much trading. “The financial industry analyst firm Dalbar has been monitoring the returns of the individual investor for 20 years. Its annual ‘Quantitative Analysis of Investor Behavior’ report repeatedly shows a vast underperformance for those that trade most frequently. Dalbar has found that, as a whole, individual investors withdraw funds when the market is down and add to positions at high points—the exact opposite of the buy-low, sell-high maxim.”
In sum, the answer to “How often should I check my investments?” is once in a while. If you’re buying and selling individual stocks, you may want to check the prices every month or quarter to keep up with the quarterly progress. But even when investing in individual stocks, if you’ve done your homework and understand how the company makes money, you need to give the firm time to reach the anticipated growth goals.
In contrast, mutual funds and ETFs are so widely diversified that you’re better off checking the prices infrequently. Once a year, when you rebalance your asset allocation, may be enough.
When you do check your prices, here are some helpful resources:
- Yahoo! Finance
- Your brokerage account (for example, Schwab, Fidelity or eTrade)
Most financial websites, such as MSN Money, Yahoo! Finance, and many others, offer a wealth of stock research information. Also, your investment brokerage firm has excellent research and quotes available.
How Do I Avoid Checking My Investment Portfolio Often
You can avoid checking your portfolio often by applying three following three tips:
- Draft a monitoring plan
- Have a long-term approach
- Seek professional assistance
1. Draft a Monitoring Plan
Although the frequent monitoring of your investment is tempting, coming up with a frequency plan is an ideal remedy. Also, it’s essential to stick to your plan. If you’re a victim of FOMO or fear of missing out, you can start by checking your investment’s performance in short intervals, like once a day, and advance gradually to a week, month, and so on.
You know that your portfolio is diversified if you have a fund or stock that you’re not happy with! It’s unlikely that all assets will move in lockstep.
2. Have a Long-Term Approach
Although there are short-term investments, investing in the stock market is best left form money that you won’t need for more than 5-7 years. For instance, if you’ll need your money after 20 years, a temporary poor performance of your investment portfolio shouldn’t worry you. This awareness can help you limit the frequency of checking your stock prices.
Also, you should keep in mind the reason for your investment. Focusing on your financial goals helps you to avoid being swayed away by the impact of a market downturn and focus on the longer term results.
3. Seek Professional Assistance
If the first two tips won’t work for you and you can’t refrain from visiting your dashboard now and then, then it’s time to turn to a financial advisor. The expert can provide helpful tips, help you control your urge, and keep you in check to stick to your plan.
Alternatively, you can entrust your investments to them. Let the professional monitor, trade, and rebalance your investment portfolio on your behalf. Your financial advisor will do the hard work: build a plan according to your risk tolerance and manage it continuously into the future.
There are low-fee financial advisors and those that also charge by the hour. You might also consider a robo-advisor that also offers human advisors, to help manage your investments.
The Investing Takeaway
How often should I check my investments? Less is more. Investing is for the long term. Create a sensible plan according to your risk comfort level and rebalance it regularly.
Once a month might be the minimum, while three or six months, or even after a year is are ideal investment checkup frequencies. Refrain from the daily or weekly option. Be patient and let the growth of businesses continue as you benefit from increasing share prices.
Also, if you can’t cultivate discipline independently, ask for professional assistance. A financial advisor can offer helpful tips and keep you in check to stick to your plan.
No, you shouldn’t check your investments daily or weekly. Frequent visits to your dashboard can lead to whim trading, which increases cost and tax from capital gains. Daily stock market fluctuations shouldn’t be an alarm if you plan to use your money after seven years or more. The swings are just for a short time, after which investments typically revert to their long-term growth trends.
The 3-day rule in investing means you should wait at least 3 business days after a substantial drop in a stock’s share price before buying. Stock declines can trigger margin calls causing more stock sales and additional price declines. Typically, stocks continue to drop after declining based on bad news. If you wait three days, you’re likely to benefit in the long term with greater profits and fewer losses. Just remember to review the future growth prospects of the company or industry before buying in after a price drop, to make sure the company is poised to recover.
The 7/10 Rule means that for every $1 to turn into $2 at a 10% rate of return, it takes 7.2 years. That results from dividing 72 by 10. Similarly, if you apply the formula to Warren Buffet’s number, $10,000 takes approximately 10 years (72 divided by 7) to double.
This is similar to the rule of 72, which is a rule that helps determine how long it will take your money to double, at a given yield or rate of return. Divide the rate of return by 72 to get the number of years until your investment doubles. With a five percent yield, it will take 14.4 years to double [72/5% = 14.4 years].
You should manage your portfolio once a month, three/six months, or once a year. Avoid managing your investment portfolio outside this bracket. You can limit your investment dashboard visits by choosing your specific frequency and sticking to it.
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