Saving and investing money over time are critical for building wealth, but checking your accounts constantly can be detrimental to your strategy. Not only can it be stressful to see your investment account balances fluctuate with the market, but seeing those ups and downs can also make you feel pressured to pull your cash out of the market.
It’s important for investors to regularly rebalance their portfolios so that they’re well-diversified, but you should avoid constantly pulling up your investment app. Here’s the science behind why checking on your investments too often can lead to poor decision making, and how often you should review your portfolio.
Why you shouldn’t check your portfolio too often
Behavioural finance experts say that investors sometimes face loss aversion bias, which means that they have a stronger emotional response to losses than to gains. If you’re investing for the long term, you may not feel as strong an emotional response to your balance ticking up over time as you would seeing red on a day that the market plummets.
Loss aversion could cause you to check your portfolio more often when the stock market is dropping. And research shows investors are more willing to take on risks from investing if they check their portfolios less often. Researchers also found that investors who got the most frequent feedback on their portfolios took the least risk and earned the least money.
How often you should check your investment portfolio
Financial advisors tend to recommend that investors check their investment portfolio once a month or once a quarter. This doesn’t necessarily mean you have to — or should — make changes to your portfolio. Instead, you can assess whether there were any surprising changes.
But you should rebalance your portfolio regularly. This entails selling assets that have become more valuable to the point that they take up a higher percentage of your portfolio than your strategy calls for and using that money to buy assets that aren’t taking up enough room in your portfolio. The frequency with which you should rebalance will depend on your specific financial situation, but some advisors recommend once a quarter, or once or twice a year.
How to avoid checking your portfolio too often
To avoid checking in on your investment portfolio too often, create a schedule that makes sense for you and set a reminder to review your portfolio. Ideally, you won’t check on your portfolio outside of these times.
You can also turn off non-essential banking and investing notifications, so you aren’t reminded about your accounts as often, and delete the app on your phone so you only check your portfolio during scheduled times on your computer.
And when you check your balance, start with its long-term performance instead of looking at short-term price movements. It can be stressful to see your portfolio drop 10% in a single day, but if you zoom out and see that your balance has grown over time, it can make stomaching that correction more manageable.
This article was written by Marc Guberti from Money and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.
