Five reasons to stop checking your stocks
5th October 2022 11:03
by Alice Guy from interactive investor
If you love investing, you may find yourself checking your investments every day. But here are five reasons to sit on your hands and stop tinkering with your portfolio.
We are living in strange times when investment and money news is making national headlines on an almost daily basis. Gilt yields and interest rates are on the front pages instead of Brad Pitt’s love life or what’s happening on Celebrity Love Island.
Those of us who are long-term investors are used to searching the back pages of the newspapers for the business and stock market news, but now you can’t avoid coverage of the unfolding economic crisis – it’s everywhere.
With so much stock market volatility and the finance sector’s new high profile, the urge to keep checking the stocks in our portfolios can be almost irresistible. And when we check our investments, there’s the inevitable urge to make little tweaks here and there.
But here are five reasons why, just like a digital detox, it can often pay to switch off from the stock market and stop checking your stocks!
1) Avoiding time out of the market
Every time you tweak your portfolio, you risk potential investment losses because you have some time out of the market and, if stocks jump higher, you’ll end up losing out. If you decide to sell £10,000 worth of stocks to buy something new and the market rises 2%, you’ll immediately lose £200 because your original investment value would have risen to £10,200.
Those small investment losses can soon add up if you’re regularly fiddling with your portfolio. Losing £500 each year through having time out of the market could add up to £6,323 over 10 years (assuming investment growth of 5%) and £33,889 over 30 years.
2) Shunning emotional investing
Constantly checking your stocks also makes investing mistakes more likely. Bear market fear and risk aversion often seem to ripple through the market, and fears are usually based on only partially known factors, such as an impending possible recession. Stocks will crash one day and bounce back the next as investors try to process and react to economic news.
It’s all too easy to make emotional investing decisions, such as crystallising a loss by selling when the stock market is down. And regularly checking our stocks when the market moves can mean we’re more likely to panic and make the wrong investment calls.
Instead, it’s important to be hard-nosed and resist the urge to sell when markets take a nose-dive. To quote Warren Buffett, “be fearful when others are greedy, and be greedy only when others are fearful.” And it’s easier to be a rational hard-headed investor if we stop constantly checking our stocks.
3) Sticking to long-term goals
The problem is that making lots of spur-of-the-moment tweaks, can make us drift off course from our long-term investing goals. We can snap up a little bit of this and that and end up with an extremely risky and overly complex portfolio. It makes it harder to keep an eye on our asset allocation, work out what to buy and sell, and stick to our investing strategy.
Likewise, if we decide to sell our growth and smaller companies funds during a recession, we could lose out on stellar returns once investor sentiment turns positive and growth stocks start booming again.
Instead of making snap decisions on which stocks to buy and sell, it makes sense to develop an overall investing strategy and decide how much you want to allocate to different asset types and geographies. Your investment strategy will depend on your age, risk appetite and financial needs.
Some investors decide to put the bulk of their portfolio in a low-cost tracker fund and keep a smaller proportion in more risky growth and smaller companies funds. Other investors take a more cautious approach and invest in a mixture of stocks, bonds and cash-based instruments.
Either way, it’s a good idea to review your investments around once a year to check performance and make sure they still meet your needs. You can also rebalance your portfolio if it has drifted from your original aims.
4) The power of habit
Did you realise that brushing your teeth for two minutes twice a day adds up to 24-hours’ worth of teeth brushing over a whole year?
The same principle of “little and often” applies to our finances, and it’s much easier to budget for and pay for things that are regular and expected. It's also much easier to save up for bigger costs if we get used to regularly setting money aside.
- Dividend investing: three tips for a comfortable retirement income
- Five ways to maximise your pension income
It’s the same with investing, and the power of regular investing has a massive snowballing effect. £500 invested every month for 40 years could grow into a massive £763,010, assuming 5% investment growth. Whereas £2,000 invested every year would grow only to £248,560. And the real-life difference could be even larger as the erratic investor is more likely to make the wrong calls, buying when shares are expensive and selling when they are cheap.
Instead of investing erratically, we can harness the power of habit to help us build towards a comfortable retirement and a decent-sized pension pot.
5) The impact of fees
Over time, the impact of regular trading fees can also have a big impact on your overall investment wealth. An investor who spends £200 each year on trading fees over 40 years would spend a total of £8,000 on fees and could reduce their investment wealth by £24,856 by the time they come to retire: the extra loss is due to the compounding effect of lost investment capital.
Of course, we shouldn’t let the fees tail wag the investment dog and the fees alone shouldn’t put us off selling an underperforming investment. But they may have an impact on our overall strategy, how many times we trade and how many investments we hold.
Holding several similar tracker funds and rebalancing between them will cost us more in fees than holding one well-diversified fund. Not only that, but having a simpler portfolio will make it easier to keep track of investments in the future, reducing the need to keep checking your stocks.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.