How Often Should I Look At My Investments?
We wouldn’t expect a doctor’s surgery to have a cigarette machine in the waiting room. Nor a gym to open a branch of McDonald’s for its members.
And yet we, in the financial services industry, positively encourage our customers to develop bad habits.
Investment platforms, with ever shinier front ends, offer 24/7 access to view the value of our portfolios any time of day we wish. Well meaning financial advisers bombard their clients with “market updates” in a bid to show they are doing something.
All of which, overtly or surreptitiously, encourages the end investor to do the exact thing we counsel them not to do. Engage with their investments.
Let’s consider two investors, both invested in exactly the same way.
Colin (blue line) compulsively logs into his brokerage account every day. He notices every single (perfectly normal) day to day gyration of the market, and as the value of his investment grows these swings in value take an increasingly large emotional toll.
Helen (orange line) looks at her portfolio only once a year and therefore, by definition, enjoys a smoother investing journey. Not only that, but as she looks less frequently she is also likelier to see positive progress on the occasions she does so.
Although Helen ends up in exactly the same place as Colin, she makes life so much easier for herself along the way.
I say again - there are no bonus points for difficulty in this game. It isn’t figure skating.
If financial services firms were trying to genuinely do right by the families we work with, we would actually be making investment platforms less functional and more difficult to engage with, rather than more shiny and tempting.
We would also offer less commentary on what is going on in the world day to day, focussing instead on what never changes. The timeless principles that have consistently helped folks in the past to realise the financial futures they want.
In other words, we would be looking to make investing easier. Not harder.
None of which is to say that I am a robot. Of course, I have been known to check the value of my pension at the bus stop the odd time. In much the same way as I have been known to overindulge at the hotel buffet.
But we must recognise that these habits do nothing but ultimately harm us in the long run.
If our main edge as retail investors is to exhibit the best behaviour we possibly can, then we must give ourselves the least possible chance of making a behavioural error.
So, how often should we be looking?
In an ideal world, no more than once a year I’d say.
The below table shows the probability of a positive return from the global stock market (since the beginning of 1997) over one, three, six and twelve month periods.
If you’re invested solely in stocks and are checking the value of your portfolio monthly, based on this historical precedent you should expect to see a positive return over the month around 60% of the time. Not much better than a coin flip.
But when we instead consider annual periods of return, the probability of a positive outcome is higher - 75.8% of the time.
That might not seem like much of an improvement, but let’s say we have a ten year holding period just like Colin and Helen, the fictional investors who we met above. In one scenario, we check on the progress of our investments annually, and in the other we check the value every month.
When we check annually, based on historical averages, we should expect to be confronted with a disappointing return over the latest twelve month period two or three times out of ten.
But if we are checking monthly, we should prepare to see a negative monthly return on 47 occasions over those ten years.
We may be the best behaved investor in the world, but the more we look the more we raise the potential for catastrophic error. Each of those 47 times offer a temptation to jack it in, particularly when we might have had a bad nights’ sleep, or a row with someone we love, or a few too many drinks with our mates the night before.
It might sound trite, but the main weapon in our armoury as individual investors is our mindset. We must protect it at all costs.
If the prospect of only looking at the value of your investments once a year gives you the heebie jeebies - good! Getting better at things is meant to be difficult.
But if you can’t bear to move to an annual cadence, then moving to six or even three month observation windows to begin with will still make your journey feel much smoother.
Past performance is not indicative of future returns. None of the above is intended to represent advice to any individual. If you have any specific questions regarding your own situation, please consult with a regulated financial adviser.
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