Taking Stock of Your Portfolio: How Much is Too Much?

portfolio
danielkahneman

#1

TL;DR:

Stop looking at your portfolio value as much as you are.

LOL…


It’s never been easier to check in on your investment portfolio, so you might imagine that a Nobel laureate in economics would keep a close eye on his.

Not Daniel Kahneman, winner of the 2002 prize and author of Thinking: Fast and Slow. “I don’t look at my investments very often or not at all,” he recently told Bloomberg. “Checking them too often is not good.”

A recent analysis of data from investors who track their portfolios with SigFig agrees: Checking your portfolio more often is correlated with lower investments returns.

The median investor in our dataset checks her portfolio eight times per month. We also looked at frequent checkers — those who check 30 times a month, or about once a day — and those who check 60 times a month, or twice a day. (Actually, we even have some real obsessives who check a dozen times a day.)

The results: Investors who check their portfolios every day earned an average 0.2 percentage points less over the last year than the median-frequency checkers. The twice-a-day crowd earned 0.4 percentage points less.

That doesn’t sound like much, but over the long term, a 0.4% annual lag adds up. On a $30,000 investment at 6% per year, giving up 0.4% annually means a loss of about $18,000 over 30 years.

We can’t be 100% sure what accounts for the difference, but we have a few hypotheses. Obviously, looking at your portfolio more often doesn’t cause it to shrink, like you have the evil eye or something. But it’s possible that some of those frequent checkers are trading more often and paying more in trading fees. Or they’re more prone to panicky investment decisions. Or maybe they’re retired and have more time to sit at their computer, looking at their money – though even when we break investors into age brackets, the correlation remains.

What’s wrong with a little peek, anyway?

Checking your portfolio too often is a problem for three closely related reasons:

  • It’s depressing. Psychologists like Kahneman have demonstrated over and over that the pain of loss is more intense than the pleasure of an equal gain. All investments fluctuate, and if you have a well-diversified portfolio, some part of it may do poorly. On any given day, your portfolio has some way to make you miserable, even if it’s doing well in the long term.
  • It’s unnecessary. A diversified portfolio of index funds or ETFs benefits from regular feeding (such as automatic deposits) and occasional (see below!) rebalancing. That’s it. It doesn’t require daily tending, trading, or fudging.
  • It leads to bad decisions. Look at your portfolio enough times and you start to think, Hmm, I could probably improve this. Or worse, I’ve been losing money for the last two months! Sell! Emotional decisions can decimate a portfolio.

The takeaway:

Once your portfolio is properly diversified, fees minimized and auto-deposit set up, you may want to check in occasionally to re-evaluate and rebalance your allocations. (If you bought a target-date fund, you don’t even need to do that!) How often? There’s no right answer for everyone, but in general you may want to check up on your investments once a quarter or every six months. Think of it this way: Check in about as often as you visit your dentist — not as often as you use your toothbrush.


#2

My bots must be super depressed, they check my portfolio every 2 seconds…

Stay Fishy