Break this Bad Financial Habit
If you are 50 years old and stand a chance of living until you are 85, you have 420 months left to receive brokerage statements for your retirement accounts. That's a fair amount of wasted paper, but it's a ton of unnecessary stress and strain. I firmly believe that our tendency towards hyper-vigilance when it comes to the unavoidable ups and downs in investing is one of the worst habits we have developed as investors.
According to an often cited research report published by Dalbar the average mutual fund holding period is 3.3 years. If they are right, then you supposed long term investors will have swapped the last fund you bought ten times before you make your last trade. Which is ironic considering you likely bought it because of its "great long term track record".
For context, here are the last 420 months of the DJI:
And here is the most recent month of the same index:
Let's be optimists here and assume for a moment you have done the right thing. You have on your own or with the help of a trusted advisor built a low cost asset allocation portfolio. It is specifically designed to get you through a tremendous amount of time, multiple decades in fact. It is tied to some form of a financial plan which has taken into account all sorts of potential pitfalls; inflation, market turbulence, taxes, future withdrawals, and then some. For all intents and purposes you are in great shape. Ignoring all of this you tear open your statement like it's Christmas morning month after month. Because despite the time you have committed and the mountains of data against it, you are hoping that this was the month you knocked the cover off the ball. Most of the time you end up disappointed.
So what is the end result of you keeping score of something as arbitrary as the month to month movements of your retirement account? Well for one, you are likely to confirm Dalbar's study and make unnecessary trades. That won't help you hit your goals. Or worse, your terrible habit will cause you to abandon your plan all together.
What is the optimal frequency when it comes to looking at your accounts? That absolutely depends on your emotional make up. We can all certainly improve our behavior, but it's not likely any of us will become totally optimized any time soon. At our firm we schedule semi-annual plan reviews, and offer quarterly portfolio reviews which for most is too often. I recommend you decide ahead of time when you look over your plan, then stick to it.
