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6 Remedies For Obsessive Portfolio Monitoring

By Sam Swenson, CFA, CPA – Updated Jun 23, 2020 at 12:33PM

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Follow these six steps to avoid impulsive decisions that could lead to wealth destruction.

In the age of immediate gratification, I know I'm not alone in that I spend more than a healthy amount of time staring at screens. Many of my go-to apps reside under the Finance header on my phone, but the sad truth is most of the time I spend checking them is wasted. Day-to-day financial fluctuations have proven to be nothing more than noise and have no bearing on true, long-term investment outcomes. That's why the best financial plans are the ones left alone and monitored periodically, but certainly not daily.

Studies have shown that excessive portfolio monitoring can lead to ill-advised and emotional trading, which is likely to harm investment returns. Trading on emotion is bound to disturb your predetermined asset allocation, which by itself goes against basic principles of long-term investing. Trading also creates its own costs -- transaction and tax -- depending on the platform you're using and the types of securities you're trading. The simple act of opening an app on your phone increases the probability that you make a trade or a change, and significant research exists to show this should be avoided.

In an effort to help us get off the phone and back to our real lives, consider the following steps:

Person taking notes by a computer.

Source: Getty Images.

1. Equip yourself with Knowledge:

According to the "father of value investing", Benjamin Graham, a prerequisite for investing in financial markets is to understand that they will fluctuate. It's critical to be aware of historical market performance, and to allow that knowledge to harness your emotions going forward. We've had massive economic and political disasters, plagues, and multiple episodes of war, but markets have always recovered over the long run.

2. Have a Plan:

Create a written plan -- yes, with words -- to specifically delineate how and where your funds will be invested, the characteristics of a suitable investment, and when your portfolio will be rebalanced. If you are equipped with the right knowledge and are able to apply that knowledge to a written plan, you will have accomplished the grand majority of what it takes to become a successful long-term investor. If you need help determining the right asset allocation, find a fee-only financial planner to help.

3. Implement the Plan:

Oddly enough, this can be a difficult step in that most people can very easily find ways to deviate from their written plan. There will always be a new stock advertised on CNBC and a new alt-coin discussed on Reddit; by not stepping into this quicksand, you will be doing yourself a big favor. In fact, maintaining investment discipline is one of the most effective strategies in reducing the harm of human emotions.

4. Delete the Apps:

At the least, delete redundant apps or the ones for sites that are more easily navigated on a laptop. By having to go to a computer to review your portfolio, you're adding a barrier between you and decisions that could potentially hurt you. There really isn't a good reason to check your portfolio religiously, and by limiting the amount you check your financial data, you protect yourself. Plus, your eyes will thank you for it!

5. Monitor the Plan:

At first, give yourself permission to look at your investments no more than once a week, and see if you can reduce the frequency from there. Continuously refer back to your plan to ensure you are actually following the document to ensure you are staying on track. Like the market, emotions fluctuate, but your written document doesn't -- and that is the proverbial "stake in the ground" from which most of us can really benefit.

6. (Maybe) Change the Plan:

If something significant has changed in your life (loss of a family member, marriage, birth of a child, etc.), there may be an active need to change the plan. Ideally, a well-written financial planning document will anticipate potential life changes, with correct asset location and accurate asset titling -- but this is a story for another article. The bottom line is that changes should only occur in exceptional circumstances, and a written document may quell the desire to watch your portfolio every day.

We are all tasked with making sense of what often feels like an avalanche of financial data. Much of it is delivered in a way that creates a temptation to take an action that costs money. Most of us recognize that a carefully considered plan is our best choice for achieving a desirable investment outcome, but we all feel the magnet of push notifications and banner ads from time to time. The key is to recognize well in advance that these temptations exist, and it is in our collective best interest to try to avoid them. In the words of the great Jack Bogle, "don't do something, just stand there!"

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