Back in the day, stock market investors had to wait for statements to arrive in the mail to check their portfolio balances. Nowadays, getting a real-time update on your portfolio couldn’t be easier. You log in to an online account or open an app and see how your investments are faring.
But there’s a limit as to how often you should be checking your portfolio. And checking it daily could end up being a huge mistake.
Why not to look
Just as you might peek at your checking account balance daily to make sure you have enough funds to cover your bills, you may also be tempted to review your investments each day. But Jessica Nino, financial adviser at Edward Jones in Poulsbo, Washington, said in an email that this approach could backfire.
“Frequent monitoring can increase anxiety and tempt investors to react to normal market movements rather than stay focused on their goals,” Nino said.
“Market fluctuations of 5 percent to 10 percent can be a perfectly normal part of investing and often aren’t a reason to make changes,” she added. “When you check a portfolio every day, you’re exposing yourself to short-term movements that rarely require action.”
The biggest danger in checking your portfolio daily “is not the information. It’s the urge to do something about it,” Jordan Smyth, president and senior wealth adviser at Glassy Mountain Advisors in Charlotte, said in an interview.
Novice investors (and sometimes even seasoned ones) often struggle to distinguish between temporary noise in the stock market and fundamental shifts. Normal market pullbacks rarely require action, Smyth said, while structural changes such as a massive blow to a company’s financial health warrant portfolio adjustments.
But many investors react to fear, since it’s their money on the line. That can lead to poor decision-making, such as selling stocks when their value has declined. This could lock in losses that deprive investors of long-term compounded growth.
The right check-in frequency
There’s no reason to be in the dark about your portfolio. In fact, periodic checkups are essential whether you hold individual stocks or broad market index funds, though stock investors must watch concentration risk even more closely.
Individual stock values can rise and fall over time, creating imbalance in a person’s overall investments. You don’t want too much concentration in a single stock or industry, since that could increase your risk, so it’s important to shift assets around if your portfolio reaches that point. But even with that, Nino said it’s important to establish a healthy portfolio checkup routine.
“If you’re early in your career,” she said, “checking two to four times a year is generally sufficient. Your biggest asset at this stage is time, and your focus should be on consistently adding to your investments and letting them grow.”
If you’re mid-career, Nino said a quarterly or semiannual review can make sense, especially since periods of volatility can create opportunities to buy good investments at lower prices. And if you’re nearing or in retirement and have already reduced your risk by shifting some of your stock holdings to bonds, checking your portfolio once or twice a year may be sufficient, Nino said, especially if you have an adviser who’s on top of things.
How to review your portfolio
When you do sit down to review your portfolio, Nino said, you should first confirm that your asset allocation still supports your investment timeline and goals.
“Over time, market movements can shift your allocation. If it’s drifted, it may be time to rebalance,” she said. Rebalancing allows you to adjust both individual stock holdings and your broad stock-to-bond ratio back to target levels.
Smyth said a good rule of thumb is if an asset class strays more than five percentage points from your target allocation (for instance, growing from 60 percent to 65 percent of your portfolio), it’s time to trim back.
Also review whether any life changes warrant a strategy update. A new job, a move, or a marriage or divorce could prompt a shift in strategy, especially if you find yourself needing more cash in the near term.
Smyth said if you have a taxable account, it’s also worth checking for tax-loss harvesting opportunities. This strategy entails selling underperforming investments at a loss to intentionally offset capital gains, which add to your taxable income.
But all told, if there’s no need to make portfolio changes when you do your checkups, just leave things alone, especially if your investment mix is rooted in a strategy you’ve carefully thought through in advance.
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