If you’re a passive investor that’s looking to grow your nest egg long-term, how often should you be checking your portfolio? Since many people have a loss aversion bias that can cause overreactions to negative news, should you just be blissfully unaware, or be looking at your stocks every day? The answer is depends on whichever option is the most boring.
Taking emotion out of your portfolio
What’s more important than how often you look at your portfolio is how you react emotionally to changes in it. Since many people feel the loss of money more than they enjoy making it, it can create a bias to avoid losses in the future. This is the basis for the idea that checking your portfolio too often can lead to bad, impulsive decisions.
For that reason, it’s commonly recommended that you either don’t look at your portfolio more than once a quarter, or monthly. The distance can help you view the performance of your portfolio more rationally. You’ll lose the stress over short-term noise, and you can focus on reaching long-term objectives.
In other words, if market volatility drives you up the wall, checking it every day is probably not a good idea, unless you’re disciplined. Keep it routine, rational, and boring.
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OK, but how often should you balance your portfolio?
Balancing your portfolio is more about making sure the predetermined level of risk you’re comfortable with is still reflected in the mix of stocks, bonds, and other asset classes you’ve accumulated, as they all vary in risk and reward. If you do well in stocks, for example, it increases the overall value of your portfolio, which, as a result, will be overweighted in stocks compared to other assets like bonds. Rebalancing, then, consists of buying and selling investments in order to maintain an appropriate asset allocation. As Investopedia puts it:
Portfolio rebalancing is nothing more than regular maintenance for your investments, like going to the doctor for a checkup or getting your car’s oil changed.
That’s why many people balance monthly or quarterly. Still, investors might also initiate an asset relocation when unexpected market events might knock their portfolio out of balance, like when the stock market goes up or down by 5% or more. The ideal frequency of rebalancing should be based on practicality, transaction costs, and allowable drift built into your portfolio.
That all said, there’s evidence that the rate in which you rebalance your portfolio is not all that important in the long run. According to Investopedia , a 2009 Vanguard study revealed that passive investors who either rebalanced their portfolio monthly, quarterly, or annually had rates of average annualized return and volatility that were nearly identical amongst the three groups. That’s basically why Vanguard only recommends checking your portfolio every six months or once a year.
The bottom line
Since portfolio allocation doesn’t require a lot of intervention, there’s really no need to check your long-term investments every day. Still, many people love to watch the day-to-day movements of their investments, and they do so while maintaining an emotional distance, whereas others get stressed over the fluctuations. If the short-term volatility clouds your judgement, a hands-off approach in which you check-in once a monthly or quarter might be a better plan for you.