In theory, the concept of “set it and forget it” feels pretty ideal with the rise of automated investing apps. But in reality, investment opportunities should come with a sidebar course in willpower and self-discipline. Especially if you have unfettered access to your accounts, your balance, and the ability to change your portfolio 24 hours a day.
The way it’s supposed to work is that you set up your account, then set a reminder to monitor investments (or check in with your financial advisor) in a few months. But we live in an on-demand society where apps send notifications to you in real time and FOMO is real.
Is there a happy medium between going too long without checking that you forget your password and obsessively checking your balance every day? Absolutely—but it’s not an exact science. Read on to find out how to monitor your investment portfolio wisely.
Embracing Your Rational Side
It’s generally not the best idea to stalk your investment accounts. The reason is simple: Investing, especially for retirement, is a long term, rational game, and we’re emotional beings.
Just think about it—401(k) and IRA plans are so committed to this philosophy that they’ll charge you up to a 10% penalty if you withdraw your money before you hit a certain age, and Social Security simply isn’t available until you’re 62.
It’s no secret that the market fluctuates by the day, and watching it roller coaster can be dangerous, since the natural human reaction to a loss is to take whatever money is left and run.
It’s a Nobel Prize-winning theory called loss aversion, and it says that as much as people love making money, they hate losing it more—so much more that the threat of a larger loss in the future overpowers the possibility of big gains. Simply put, a downward market trend can lead investors to the emotional mistake of selling low and buying high.
If this sounds like something you would do, one way to check yourself is to use an investment account, like SoFi Invest®, where you have access to a human who can guide you, help you optimize, and even talk you down if necessary. And if you do have losses that throw you out of balance, the robo-advisor half of the program monitors investments and handles optimization for you—no emotion required.
Another big reason to leave your investments alone is the effect that compounded interest can have on your portfolio over time. Here’s how it works: Your money earns interest (or dividends, in the case of stocks) for a designated time period, and then that growth becomes part of your principal balance.
The next period, you earn interest on that new balance. The gains may be on the small side at first, but after 10 to 20 years, compounding can pay off. But if you get spooked by the market and move your portfolio to cash, that momentum either slows down or stops completely.
Do Some Investments Require More Monitoring?
If you choose to invest in an index or Exchange Traded Fund, your portfolio is set up to represent a cross-section of the market. Often, these funds are rebalanced and optimized automatically by the firms who create them.
If an individual company stock is your preference, checking it less frequently is even more important. And if it’s a headline-grabbing company that’s likely to be analyzed by pundits, one way to avoid emotional mistakes is to leave it be.
If you do notice a drop in an individual stock, take a look at the other stocks in the category—is it just your company that’s down? Or is every company down?
Instead of over monitoring, one way to ensure that your money is working hard for you is to determine your short term and long term financial goals. If you need to build an emergency fund, you’ll want investments that give you access without penalty. If retirement is the end game, you’ll want funds that can benefit you most in the long run.
Does Age Matter?
As a general rule of thumb, younger investors are often advised to go for a more aggressive portfolio for the potential of higher gains. Then, as they age and get closer to retirement, they’ll begin to move their money into moderate-risk funds, and then finally to conservative funds.
Not sure where you fall on that timeline? With SoFi Invest we can help guide you through picking the right portfolio mix based not only on your age, but your targeted goals. And if you’re not sure what those goals should be, check out our generational guide to smart investment strategies.
Regardless of the age you begin to invest, though, it’s important to have a diverse portfolio.
So, How Often Should You Review Your Portfolio?
Experts don’t agree on the specifics, but the general consensus is that less is more. For investors who are saving for retirement over decades, once or twice a year may be sufficient. Some advisors even recommend only checking when you need to make a change to your account.
If you’re a solo investor, your portfolio review should be to ensure that your investments are still on track and appropriate for your age and goals. As you age, your goals are likely to change, so a rebalance will help you stay current.
Let SoFi Do the Heavy Lifting
Unless you’re an investment junkie, DIY rebalancing can be complicated and fraught with risk. A great thing about using auto-investing or a financial planner is that your portfolio is automatically reviewed and rebalanced by professionals.
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