Passive Investing Should Be Boring

If you are a passive investor looking to grow your nest long term, how often should you check your portfolio? Since many people have alossbias that can overreact to negative news, should you just blissfully not be aware or look at your stocks every day? The answer depends on which option turns out to be the most boring.

Remove emotions from your portfolio

More important than how often you look at your portfolio, how you emotionally react to changes in it. Since many people feel more about the loss of money than they enjoy making it , this can create a bias to avoid future losses. This is the basis for the idea that checking your portfolio too often can lead to wrong impulsive decisions.

For this reason, it is generally recommended that you do not look at your portfolio more than once a quarter or monthly. Distance can help you evaluate the performance of your portfolio more efficiently. You will lose stress from short-term noise and be able to focus on achieving long-term goals.

In other words, if market volatility baffles you, checking it every day is probably not a good idea unless you are disciplined. Make it routine, rational, and boring .

Okay, but how often should you balance your portfolio?

Balancing your portfolio is about making sure that the predetermined level of risk that you’re comfortable with is still reflected in the mix of stocks, bonds, and other asset classes you’ve accumulated, as they all differ in risk and reward. For example, if you do well with stocks, it adds to the overall value of your portfolio, which, as a result, will carry more weight in stocks than other assets such as bonds. Thus, rebalancing consists of buying and selling investments to maintain proper asset allocation. As Investopedia writes :

Portfolio rebalancing is nothing more than regular maintenance of your investment, such as visiting a doctor for a checkup or changing the oil in your car.

This is why many people balance monthly or quarterly . However, investors can also initiate an asset movement when unexpected market events can throw their portfolio off balance, such as when the stock market rallies or falls by 5% or more . The ideal frequency of rebalancing should be based on practicality, transaction costs, and the amount of drift in your portfolio.

That being said, there is evidence that the speed at which you rebalance your portfolio is not all that important in the long run. According to Investopedia , a 2009 Vanguard study found that passive investors who rebalanced their portfolio monthly, quarterly, or annually had average annualized returns and volatility that were nearly the same across all three groups. In fact, this is why Vanguard recommends checking your portfolio only every six months or once a year.

Bottom line

Since portfolio allocation does not require much intervention, there really is no need to check your long-term investments every day. However, many people love to observe the day-to-day movements of their investments, and they do so with an emotional distance while others are stressed by the hesitation. If short-term volatility is clouding your judgment, you may be better off approaching a hands-off approach where you check in once a month or quarter.


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