Most of us don’t have the courage to look at the portfolio on days that the market crashes and then again, on days that the market has rallied, why not sneak a peek at the returns. Digital portfolios have made this access easy and the temptation to look at returns regularly is harder to get over.
Ideally, you shouldn’t be concerned about portfolio returns every now and then. Of course, in times of extraordinary market movement, you will want to see what happened but, looking at your portfolio returns too often can be detrimental too.
Numbers feed emotion
In a market crisis, there is a lot of negative news which, causes anxiety and fear. In such times looking at the falling value of your portfolio can only add to that anxiety. The opposite happens when the market is rallying; you look at the portfolio value increasing every day and feel like you have made all the right choices.
Neither extreme is the accurate picture. Looking at the daily value of your portfolio will only lead you to compare it with the previous day’s value and see whether it is up or down. Ideally assessing a portfolio return should be done in context to the underlying benchmark and to your own return objective for a given period, based on your financial goals. Every other comparison is emotional and not objective.
You can’t really compare the portfolio return to your return objective on a daily basis, because we know that market-linked investments are volatile whereas your goal is likely to be unchanged for a while. Hence, a daily comparison says nothing about whether your portfolio will be able to achieve what it has been set to do.
How often should you check?
Instead of giving this question an answer based on the time lapsed, think about it in terms of the need to check when variables change. As mentioned before, it is okay to check the status of your portfolio during extraordinary market events. You may end up checking the value more frequently than usual during such a phase, which is fine, as long as you don’t fall prey to actions based on emotion.
Other than that, it’s prudent to match your portfolio checks with a change in your own cashflow or your earning situation. For example, if you are a salaried individual, take stock of your portfolio along with the annual change in your income and your annual bonus.
There could be times when you have to make large spends or your goal value changes or you are close to a goal manifesting, these are also appropriate times to check on your portfolio value.
That will give you an opportunity to review the state of your investments and make the appropriate changes based on the change in your income situation. If you are changing jobs, whether you are starting a new job or taking a break, this is also an appropriate event to check up on your investment portfolio.
Other such times could be when you get sudden cash inflows either from business income or inheritance. There could be times when you have to make large spends or your goal value changes or you are close to a goal manifesting, these are also appropriate times to check on your portfolio value.
If you are one of those who are investing only for the purpose of creating wealth with no long term goal or life event attached to your portfolio allocation, then you can fix a time in the calendar to do the review; make sure the reviews are at least 6-12 months apart. Reviewing your portfolio too often can conjure up uncontrollable emotion leading you to the urge to act more when the need is really to act less.