The average American checks their phone 96 times a day. While phones may have become a central piece of our lives, this is once every 10 minutes!
Entirely too much, wouldn’t you agree?
This has also made it easier for people to check on their portfolios. Whether it’s pulling up news and quotes on Yahoo Finance, or logging into their Schwab account, it’s a super easy time-waster these days.
This will make the following statement sound strange, but here it goes.
Stop looking at your investments.
Why do I say that? Well here are a couple of reasons, just off the top:
- It’s distracting.
- It leads to increased stress.
- It takes a toll on your mental health.
- If you see negative numbers, your emotions will get in your way.
- You may be inclined to make your portfolio more conservative, not giving you the growth needed.
I have used this graphic more than once when illustrating the emotions one feels when investing. It cracks me up, but it’s pretty accurate!
Sometimes it goes too far. Perhaps you heard about the young man who took his life due to perceived losses in his trading account in 2020. If not, here’s the story. This stuff is sad, but also very true.
People a lot smarter than I have done studies in investor behavior over the years. The term “loss aversion” was coined by these studies, which follows the principle that people dislike losing money more than they like making it. It’s best explained with this simple sketch:
The depth of the emotions is real! The estimate is the impact of the pain is twice as much as that of the gain. In a more economic diagram, it looks like this:
Daniel Kahneman and Amos Tversky first studied this in the early 80s, then followed up with a powerful 1997 study. The conclusion: loss aversion reduces investor returns. They said,
The investors who got the most frequent feedback (and thus the most information) took the least risk and earned the least money. Source
In other words, investors respond to losses much more strongly than when making gains. They tend to believe their investments are riskier than they actually are. And the more time people spend checking and analyzing their portfolio, the more they are tempted to change something unnecessarily. Often not in their best interests.
I get it. It’s exciting to watch your portfolio grow and grow. And as it gets larger over time, your interest level will grow as well. This will lead you to want to check it more often.
Even if the market is “up”, one of the many asset classes in your portfolio may be trailing others. That’s diversification at work! But focusing on the underperformers will bother you more than the market being “up”. I’ve seen it time and time again.
I always ask people how the time they spend checking their portfolios helps them accomplish their goals. This is a loaded question because oftentimes the answer is IT DOESN’T.
But from there I ask more questions to gain perspective. It’s better to understand than to dictate. We typically get into discussions about getting a daily return on LIFE, not just a daily return on investments.
Over time, investors learn to get comfortable being….well, uncomfortable. Money is a taboo topic and investing your life savings is not the most natural thing that people do. This is all understandable.
So what is one to do?
Here are some ideas to consider:
Commit to checking your portfolio less often! Sounds easy but it’s not. See if you can review it quarterly at least, or even semi-annually. Or only when there are times you might have to check on it (applying for a mortgage, getting a bonus at work, planning on a child, etc.).
If you are someone who pulls it up on your device throughout the day, wean yourself off by limiting yourself to once per day. Then once a week. Then once a month. Etc.
Working with an advisor helps, as you can rely on them to let you know when a review is appropriate.
Realize you are in it for the long-run. You may feel frustrated by the slow crawl, not seeing much progress on a daily basis. But think long-term, because if not, the small daily market moves will drive you crazy. Slow and steady wins the race (retirement goals, financial freedom, etc.).
Become more systematic. I don’t recommend this to many people but if you do insist on taking action, at least have guidelines in place. Have preset rules for buying, selling, and rebalancing. For example, agree that you won’t sell holdings unless they fall by a certain percentage.
Lastly, is my favorite tip. Go on a media diet. Both social media and financial media tend to focus on the drama unfolding in that day’s news. That’s how they get viewers. Spend less time consuming the various news sources and you’ll be less inclined to let fear take over your decision-making.
Hopefully, you found this helpful. Let me know when we can review your portfolio (in 3-6 months)! Bye for now…