I have been taking a casual survey lately of responses to one question: “How often do you check your investment account balances?” I have heard answers that range from “once a year, if even then” to “3 or 4 times a day”.
There has been some scholarly work to take a close look at investor behavior and its impact on investor returns. One topic is known as “loss aversion”, or more simply “the tendency to prefer avoiding losses to acquiring equivalent gains: it is better to not lose $5 than to find $5” (Wikipedia).
Said another way, if we look at our accounts too often, we think as short term investors even when we tell ourselves we are “in it for the long term”. Looking at the S&P 500 on a variety of time frames provides this insight.
Or, said another way, even if you look at the balance once a day, you have roughly a coin toss chance seeing a positive return. If you look at it once a year, it is about 3 out 4 positive, and every 10 years almost certain the results will be positive. The more frequently we monitor balances, the greater risk it is to judge a long term investment on short term performance.
Here is a thought. At whatever interval we choose to look, often we feel either a victim (if it is down) or victor (if things are looking up). It is actually much more empowering to instead look at the deposits to and withdrawals from the account, as these are really the only components, we have any control over.
It may be the ease of getting the information, the feeling that we are only being diligent, using a bit of caution from stories of financial hacking, or maybe it is just a periodic confirmation of “I am an investor and I think that is what investors do”. Anyway we “look” at it, looking at account balances too often can negatively impact performance. But, we still wanna look.
As always, I would love your thoughts and how often you look. All the Best.
Bryan Trible, CLU, CRPC