Stop checking your investments!

Brake lights

I own a home, but I don’t think of it as an investment. I know many people do, and with the crazy housing market that exists in some places (including, let’s be honest, my own city), it’s understandable.

But as far as I’m concerned, I would be perfectly happy if my home sold for exactly what I paid for it. Because after all, I got to live there the entire time! That’s worth a lot to me.

That said, sometimes I do (quasi-guiltily) check the Zillow and Redfin pages for my property. These sites offer an “estimate” of what the property is worth, as well as a graph of this estimate over time.

I had my page open today in fact, and I reflexively refreshed it when I sat down to work. In the space where the price was, the new price was definitely lower than what was there before!

Checking in with my emotions, I felt a pit in my stomach and a sense of “oh no!“.

It was brief, but it was there. And yet, what did it matter? What did I care what this price was doing between a few days ago and today? Even if the price dropped by half, it still wouldn’t necessarily matter, because you haven’t lost anything until you sell.

And it reminded me that frequent checking of investments is a bad idea. Let me explain.

Panic

Imagine you looked at a particular investment and it looked like this:

Uh oh. (Graphs courtesy of Yahoo Finance, because Google Finance is now terrible for some reason.)

That doesn’t feel good at all, does it.

You might be tempted to sell, or otherwise adjust your allocations. Or, even if you’re not tempted to adjust, you might just feel a pit in your stomach, a creeping sense of worry, a fear that maybe your plan isn’t so robust after all.

Don’t panic

Now here is the same chart, but over a much longer period of time

Whew.

Okay, how does that feel? Better, doesn’t it? No pit in your stomach now?

But the first graph is included in the second one. It’s just a very small piece of it.

That first graph is right where the arrow is.

For reference, this was the S&P 500 index, a good indicator of the market as a whole.

You take my point, I hope. Short-term changes in your investment performance don’t mean anything. It’s just noise. The only thing that matters is longer trends. Even one year isn’t really enough to judge trends. It takes 5-10 years of trends to really assess how an investment is doing.

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If you look too frequently, you’re going to be affected by short-term changes, and that has an emotional effect on people. But while the effect is real, the fluctuations don’t matter.

Always positive

If you’re not yet convinced, and think that I was just finding convenient screengrabs to prove a point (“what about the Great Recession, Mike?“) I give you this chart.

S&P 500 10 year annual rolling returns. Source

It shows 10 year rolling averages for the S&P 500, which means that for each year, the average annual return for the previous 10 years is tabulated.

Aside from 2008 and 2009, which we all know were awful years, you’d have to go back to 1939 to find a 10 year average return than was negative. In almost every single year, the 10 year rolling average has been positive, with a long term mean around 10%.

(And this information can be corroborated in additional places.)

So pick your investments wisely, with a long term track record of positive returns. Don’t look for the next big “get rich quick” scheme. Be boring. Set up regular investments over a long term. And then let it go. There little benefit—and certainly no need—to review them so much.

But enough about me. How often do you review your investments?

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