After creating a comprehensive investing plan, investors may wonder how often they should check up on their investments.
Like many facets of investing, the answer largely depends on an investor’s risk tolerance and ability to stomach market volatility, investment horizon, and financial goals. This article will focus on investors with a long-term horizon of 10 years or more.
Long-term investors with a well-defined investment plan may need to check up on their investments less than one might expect. They may consider checking up on their investments monthly to see if they are interested in doing so and if they can avoid making knee-jerk reactions to volatility. However, less frequent but regular intervals – such as quarterly or bi-annually – may help investors see the bigger picture and avoid rash decision-making.
See more: Asset Allocation 101
Excessive monitoring of one’s investments may lead to impulsive decisions, like selling at a loss. It’s important to note that an investor won’t realize an actual loss until they sell the investment. This means that long-term investors may be able to find comfort in knowing their portfolios may have considerable time to potentially recover from short-term fluctuations and volatility.
As a reminder, investors should have a well-defined investment plan that fits their unique risk tolerance, investment time frame, and financial goals. If this is in place, investors may benefit most by sticking to the plan, trusting the process, and avoiding selling investments due to short-term volatility.
However, it is important to revisit and update the financial plan and investment goals as needed to reflect changes in circumstances. This may include career changes, the birth of a child, and paying off major debt, among others.
Don’t Forget About Rebalancing
When checking up on investments, it’s important to consider asset allocation and rebalancing as part of the routine. Asset allocation, the strategy of dividing an investment portfolio between different asset classes, should be included in an investor’s financial plan and goals.
It’s important to recognize that portfolio weights will change over time as some investments may perform better than others. The investments that perform well may begin to take more weight in a portfolio from the underperforming assets.
As a portfolio’s asset allocation changes, its risk profile does, too. To return the portfolio to the desired risk profile, an investor may need to sell some of the successful investments and reallocate funds to the lower-performing investments.
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