Many investors avoided peeking at their investment statements during the grinding bear market of the past year. The prospect of seeing all those cracks in their nest eggs was just too agonizing.
But in June 2023, the bear gave way to a bull market, with the S&P 500 index climbing more than 20% above the recent low it set in October 2022.
The rise in the S&P 500 means many investors are a lot richer than they were a few short months ago. But if you are tempted to see just how much your portfolio has rebounded, know that doing so can be counterproductive.
As the Wall Street Journal’s Anne Tergesen recently pointed out, those who look at their investment statements during good times often behave in ways that are counterproductive to their long-term financial health.
That is because during bull markets, investors can become intoxicated by their newfound wealth, which can lead them to buy more stocks than might be prudent and to make other foolish decisions, such as trading too often.
As Tergesen reports:
“The more people look at their 401(k)s, the lower their long-term returns are likely to be, according to two landmark studies from behavioral economists Shlomo Benartzi and Richard Thaler. They found that investors with distant goals who resisted the temptation to monitor the market earned significantly higher profits over time than those who checked annually.”
Another downside of checking investments too often
Checking your balances frequently can be harmful in another way. Tergesen writes that since 1929, the S&P 500 has recorded negative total returns on nearly half — 46% — of trading days.
So, if you looked at your balance daily during that time, you experienced a lot of negative emotion over the course of a year.
Researchers have found that people tend to feel the sting of losses much more intensely than the joy of gains, a behavioral bias known as loss aversion. Seeing all those negative numbers can really take a toll.
Those who check their balances less frequently tend to fare better. Tergesen cites research that shows that if you had looked at your statement just once a year in the period since 1929, you would have seen a negative number only 26% of the time. Stretch the interval to 10 years, and the chances of seeing a loss were just 6%.
Nassim Nicholas Taleb made this same point in his bestselling book “Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets.”
In that book, Taleb calculated the probability of seeing a gain or a loss in a hypothetical portfolio over various periods. He found that someone who looked at their portfolio balance every second or even hourly would have had around a 50% chance of seeing a loss. Checking over longer periods reduced dramatically the chances of seeing a loss.
How often should you look at your portfolio?
David Blanchett — head of retirement research at PGIM, the asset-management arm of Prudential Financial — tells Tergesen that checking your investments quarterly or even annually should be sufficient.
The Financial Industry Regulatory Authority, or FINRA, recommends checking a bit more often, either monthly or quarterly. It states on its website that regularly eyeballing your statements is a key way to protect your portfolio:
“You should review your statement as soon as you receive it to confirm it correctly reflects your investment decisions and any actions you made or authorized during the time the statement covers. Also, review your complete account statement; don’t just look at the summary page.”
So while total ignorance is probably not bliss, looking at your balance less frequently might boost both your mental health and your bottom line.
Ready to start your investing journey? Check out “9 Tips for Sane and Successful Stock Investing.”