A watched pot never boils, or so I’m told. When I was much younger, I put this theory to test and, to my surprise, the water did boil as I kept my eyes glued to the pot.
Watching water boiling, grass growing, or paint drying is boring and a waste of time. Similarly, watching your investment accounts daily is not productive. Your investments will rise or fall whether you watch them or not. In fact, they may perform better if you don’t watch them at all.
In a study by Greg B. Davies and Arnaud de Servigny the authors discuss how often people check their investment accounts and their corresponding performance. They found that people who check their account balances daily experienced a loss 41% of the time. Individuals who checked their balances every five years experienced a loss about 12% of the time and those who checked it every 12 years never lost money.
Last December stocks gyrated dramatically. If you looked at the stock market on Christmas Eve, it was down 3%. Had you waited until the day after Christmas to check in on the stock market, it climbed 5%. The Dow Jones averaged a 9.4% average annual return for the past five years. A $10,000 investment in the Dow Jones Industrial ETF (DIA) five years ago is now worth $17,798. However, during this impressive run, the market experienced several down days. The Dow had 107 down days of 200 points or more and two days where it fell over 1,000 points. And, 45% of the time, the index closed in negative territory. If you were micro-managing your portfolio, your urge to sell may have been high during these down days.
Trying to time the market is near to impossible. Rather than focusing on the daily moves in the market, pay attention to those things you can control. Here’s a list of items you should be watching.
- Focus on your long-term goals and review them annually. Your goals will help guide your financial decisions.
- Review your accounts quarterly or semi-annually. If they are allocated properly, you won’t need to make daily adjustments.
- Review your fees often. Read the small print to make sure your fees are inline, and you’re not being over charged for services you didn’t agree to.
- Check your credit reports annually. Credit Karma also recommends checking them before a major purchase or applying for a new job.
- Credit card and bank statements should be viewed monthly. A scan of your statements is wise to make sure your debits and credits are being applied correctly.
- Utility bills and other household statements should be checked semi-annually. Your statements may be delivered electronically, and your payments deducted automatically from your bank account, so checking these accounts for additional fees and balances is recommended.
- Your asset allocation should be reviewed annually. Over the course of a year, your accounts may move substantially. If your account balances are not in line with your risk profile, rebalance them to your original asset allocation.
- Your financial plan should be reviewed every two to three years.
- If you have a family will or trust (and you should), it should be reviewed every five years unless you have a major lifestyle change.
- Your insurance policies – home, life, auto, should be reviewed annually.
Keeping a watchful eye on your household metrics is paramount. It’s important to be on guard and vigilant when watching your finances and other items that are important to your family, so you don’t get boiled accidentally.
Be alert and of sober mind. Your enemy the devil prowls around like a roaring lion looking for someone to devour. ~ 1 Peter 5:8
March 5, 2019
Bill Parrott is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose.
Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.
 Greg B. Davies, Behavioral Investment Management: An Efficient Alternative to Modern Portfolio Theory (McGraw-Hill, 2012), p. 53. The Behavioral Investor by Daniel Crosby, Ph.D. – Kindle Edition, location 1423, accessed 2/10/19.
 https://www.creditkarma.com/credit-cards/i/how-often-check-credit-reports/, by Christy Rakoczy Bieber, 12/4/2018.