Investing Is More Predictable the Further You Zoom Out
Over the years I’ve noticed something about the investors who remain calm during market volatility – they don’t check their accounts all that often.
They could probably tell you approximately how much they have invested, but it wouldn’t be exact – maybe off by 5 to 10%. When asked how they felt during a difficult year like 2022, they answered “Fine – I just didn’t look.”
To some, it may seem careless. But is it? Consider an investor who checks their accounts daily. Historically, they have about a 50/50 chance of seeing red on any given day – 46% to be exact. There are about 250 trading days in a normal calendar year, which means for about 125 days every year, they will log in and see that their investments are down. They may think they are a resilient investor, but that kind of torture would weigh on the strongest of us.
As you check less often, the likelihood of a positive return increases – nearly 70% at quarterly and 75% at 1-year. I don’t think anyone would or should check less often than that, but it’s comforting to know that over 5-10 years, the likelihood of a negative return becomes quite small.
Most of the short-term movements in the stock market are just noise that will mean very little a week or month from now. But if you check too often, most of your attention will be spent on this noise and not the more important questions like “Is my allocation still on target and is my financial plan on track?” If you check in less often, it also allows for more time to be spent considering these bigger questions. For most, this leads to better investment decisions.
Here are a few practical steps to consider taking -
Get your financial apps off your phone/Ipad.
Don’t save your financial website passwords on your web browser (this also serves as added security).
If you are married, commit to reviewing investments together and discussing your thoughts.
Don’t watch financial news daily – consider a less frequent news source such as the Economist or Weekly WSJ.
Sleep on any investment changes that you decide to take. For long-term investors, a day will rarely make a difference.
Set reminders for when you will check it and stick to it. If you are self-managing, consider rebalancing alerts.
In the age of instant information, remember that checking your investment accounts more frequently does not necessarily lead to better investment outcomes. In fact, it often has the opposite effect, amplifying the emotional and behavioral biases that can hinder long-term success. Remember, successful investing is a marathon, not a sprint, and it requires patience, discipline, and a focus on long-term goals.
Happy Planning,
Alex
This blog post is not advice. Please read disclaimers.