With the long bull market in stocks before this year, I got in the habit of checking my various investment accounts at least daily. It was exciting to see which stocks had gone up and how much money I’d made. However, it’s been a hard habit to break with the recent downturn. While you may wonder what’s the harm in checking throughout the day, it can lead to sub-optimal decisions.
Dangers of checking too often
Stress. Research has shown that people hate losing money more than they like making money; this is known as the loss aversion theory. Add on top of that the positive reinforcement you got from watching the market go up in recent years, and the combination in a down market can cause stress. Some people may sigh and go on about their day. Others may feel like they were punched in the gut – almost physically feeling the loss.
Impulsive decisions. Usually people can accept their investments losing a certain percentage. Maybe five percent doesn’t bother you. However, as the markets lose ground day by day, the accumulated effect may cause you to sell in a panic. In this case, not only are you selling at a loss, but by waiting as the markets declined you’re selling at a greater loss than if you had initially.
Hot stocks. After COVID, stock markets rose on the backs of tech stocks. Sometimes 10 or fewer stocks could move the averages up or down. If you invested in non-tech sectors and saw how these 10 stocks were performing, you may have been tempted to throw out your plan and join in the booming sector. With down markets today, you may be thinking of buying today’s hot stocks instead of sticking with the buy and hold strategy you were using. Be careful; trading in and out to chase returns has been shown to lower your overall returns.
One possible advantage
People like to say that when the markets tank, good stocks are on sale. And they are right: companies across the board are lower, some selling at a 30% discount. If you aren’t checking in, you won’t be able to take advantage of the stock sale. Watching for sales prices may be a good reason to check more often if you have cash available to invest. However, you can achieve much the same result by dollar-cost averaging into the chosen stocks so you don’t end up trying to time the market.
How often should you check?
Financial planners suggest you don’t check your portfolio more than once per month, and many say even that’s too much – suggesting instead every three months when you receive your quarterly statement. This advice is based on your having a plan you’re confident in; if you have been chasing extremely aggressive positions that can gain or lose 20% in a day, all bets are off.
Even though I developed a habit of checking some of my investments daily, for some reason I never did this with my kids’ 529 plans. I don’t know if it was the lack of investment options or just the pain of signing into the account, but I invested money in the fund that provided the best chance for the return I needed, then let it go. I would look at the end of the year. And now with both of my kids in college, their plans will pay for at least 90% of their education.I don’t think I would have done better by checking more often.
Wean yourself off
With the success of my college fund investing, you’d think it might be easy for me to stop looking at my other investments so often. It’s not. But I’m trying a new tact: I go into one of the financial websites and look at what the averages are doing – the S&P 500, the Russell 2000, and the Dow. That way, I can see the overall direction without worrying so much if one particular stock is performing well or not.
Even if you’re like me and you won’t let emotions drive you to sell, looking at returns daily can cause unneeded stress and worry. Remember: even if your stock is down 15%, unless you sell you haven’t lost anything. If you’re following your long-term plan, trust the process. By not checking too often, you can avoid the temptation to make decisions you may regret in the future.
Photo by Michael Burrows