Transcript

Wiser Financial Advisor – How Often Should You Check Your Investments?

Hi everyone, welcome to the Wiser Financial Advisor show with Josh Nelson, where we get real, we get honest and we get clear about the financial world and your money. This is Josh Nelson, founder and CEO of Keystone Financial Services. Let the financial fun begin!

Today, we’re going to talk about a question that I’ve gotten many, many times over the years from clients and that is, “How often should I log in and look at my stuff? How often should I look at my 401K balance or investment balance?”

I can tell you that there’s no magic formula or frequency that will get you better returns or worse returns. But it is interesting that a couple of studies came out recently and were mentioned in the Wall Street Journal. These were two landmark studies by Shlomo Benartzi and Richard Thaler, and they found that people who looked at their 401Ks more often got significantly lower returns over time than those who didn’t look at them often. Why would this be?

I think the reason—and this is just my own experience talking—is that the more often people look at their stuff, the more anxious they can get. Also, the more greedy they can get, when in good markets like the one we’re in right now. So, because of those emotions, the more liable they are to do something stupid. Now, of course, nobody means to do anything stupid, but when you get your emotions involved with the market and investing, that’s not a good idea. Almost always, your emotions will tell you to do the exact opposite of what you should be doing.

We’ve all learned over the years that we should be buying low and selling high. The reality is, our emotions will tell us to do exactly the opposite. If we’re in a bear market, you can see that you’re “losing money,” –which is in quotes because, if you haven’t sold, you haven’t lost anything; it’s just happening on paper; it’s electronic numbers you’re seeing and it may be that you have very long term time horizons and don’t need that money for quite some time. But if you feel like you’re losing, you can become afraid to lose even more, and thus sell low.

There’s a lot of psychology that comes into investing, and that’s why most investors do so poorly. To be frank, I’ve seen this over the years with individuals that just make some bonehead decisions because they get their emotions involved. They get scared and so they want to sell out of all their good investments or go to something much more conservative after the markets have dropped. Or they’ll do the opposite when the market’s great and everything’s going sky high; they’ll want to pile on the risk.

It’s important to be a disciplined investor and that is a great advantage of having a fiduciary, a registered investment advisor, a Certified Financial Planner. Somebody who is in your corner and has a lot of experience is not going to be as emotional as you.

So there is a concept that I want to share called loss aversion, which can lead to impulsive decision-making. For example, we’ve seen our account balances drop and in our minds, we start to think, “Gosh, what if I lose even more money? What if the market keeps going down? What if the market goes to zero?” These things start to pop into people’s minds, and the more often they check their balances as the markets are falling, the more likely it is that they’re going to do something about it. So be careful about that and think about that the next time you’re going to log into your account. Think about why you are doing that. Is it a normal part of what you do? Is it a normal periodic thing you do, say once a quarter to check up on your stuff, maybe look at your balance sheet? Or is it in reaction to something you heard about how the market went way up or way down?

Either way, it could result in some poor decision-making, because you might pile on more risk in a good market or take risk off the table in a bad market. It’s not to say that you shouldn’t be mindful of your risk tolerance, but what I’ve found over the years is that most people’s risk tolerance doesn’t change a whole lot. It’s embedded in our values. It’s embedded in the things that we’ve learned through our experiences.

In my experience, once folks choose their risk tolerance aka risk number, it doesn’t dramatically change over time. We use a risk number with everybody we work with. That number is something to think about for the long run. Most of us have a long time horizon. What do I mean by that? Let’s say you’re investing for retirement and you won’t be retiring for another 20 or 30 years. Maybe it’s even 10 years. That’s a lot of time for the market to gyrate up and down. There are likely to be several presidencies and different types of Congress, and terrible things and great things that will happen during that period. But although the market is not guaranteed by any means, if we look over the last 100 years or so, there was only one time, during the Great Depression, when the market actually went down over a 10 year period.

Stocks are a long term investment. Stocks are something that you want to stay diversified in and hold on to for long periods of time to experience the results that 100 years of history have given us. You might remember a man by the name of Ron Popeil. You probably remember that name from some infomercials. Do you remember what he used to say on the infomercial for a rotisserie grill? Over and over he said, “Set it and forget it,” as he was demonstrating how easy it was to use the rotisserie chicken grill. I heard that so many times that I will never forget it, and it applies to investments, too. “Set it and forget it.” Once we set that risk tolerance and set a strategy for rebalancing and monitoring your investments, set it and forget it.

If you hire someone like us to monitor and manage your investments, we’re going to be doing that for you. So most of our clients report that they don’t really look at their stuff all that often. They don’t log in and look at their accounts all the time. They don’t want to go in and do stuff because they know that we’re managing it for them. They’re paying us, of course, but we’re managing that for them; we’re professionals and we have a lot of experience that tells us what to do in various markets. We also tap into a lot of other resources because we believe many minds in the financial world are a good thing. We want to be learning from other people and not just our own experience. So we do use our resources at a variety of companies, including Fidelity, Carl Schwab, Morningstar, Black Rock, and others as we set our asset allocations and help to manage your portfolio.

We don’t believe that you should just buy and forget your investments, either, and we see that happen too. Sometimes people buy investments on their own or maybe through somebody else, and then they just don’t look at it forever, like for years or decades. Sometimes that works; sometimes you just get lucky, but there are reasons to check in along the way. If nothing else, check to make sure the risk isn’t getting out of hand and that nothing has changed with why that investment was bought or owned to begin with. So, the set it and forget it approach is, we believe, a good thing from a strategy standpoint, because for the most part, what we’re doing is making long term investments. We’re monitoring, we’re rebalancing. We’re not making whipsaw changes in people’s portfolios. Think of it like steering a cruise ship. A cruise ship does not turn on a dime, especially the really big ones. A speed boat can jump all over the place, right? They can shift very quickly; they’re a completely different vehicle for a different purpose.

Your portfolio, your long term money, your long term investing is really more like steering the ship. And so we don’t want to make rash moves and do crazy stuff that normally does not do you any good unless you just get really, really lucky. I’ve never met anybody who gets really, really lucky over and over throughout their entire investing. So, a set it and forget it approach can be very effective.

In conclusion, there is no magic formula, but I would recommend that you don’t log in and look at your stuff more than once per quarter unless there’s a specific reason, such as that you want to go look at your account activity to make sure that a deposit was made or something like that. We have many clients that only look at their stuff a couple of times a year and that’s when we’re doing their review. They know that we’re managing it so it’s not something they need to look at all the time. Think about that next time that you’re thinking about checking your investments and logging in, especially if you find yourself doing it a lot. Ask yourself what benefit there is in doing that. Is it likely that the more often you check your account, the more anxious you’re going to get? I think probably yes. Destress yourself just by not looking. Peeking at it doesn’t help, kind of like planting a tree. You don’t dig that thing up and look at the roots all the time. You plant it, you take care of it, and you let it grow over time.

Thanks for tuning in. I appreciate your support. Anything that you can do to help us promote the Wiser Financial Advisor is wonderful. I appreciate your business and certainly hope you have a wonderful week. God bless. Take care.

The opinions voiced on the Wiser Financial Advisor show with host Josh Nelson are for general information only, and are not intended to provide specific advice or recommendations for any individual. To determine what may be appropriate for you, consult your attorney, accountant, financial or tax advisor prior to investing. Investment advisory services offered through Keystone Financial Services, an SEC registered investment advisor.