Over the past several years, equity markets have experienced significant volatility, with notable fluctuations in stock values. In 2019, stocks surged nearly 30%, while in 2022, they plummeted almost 20%. Since 2022, stocks have rebounded, rising over 40% cumulatively. This level of market volatility often prompts investors to frequently check their account values.
Source: Thaler, R. H., A. Tversky, D. Kahneman, and A. Schwartz. “The Effect of Myopia and Loss Aversion on Risk Taking: An Experimental Test.” The Quarterly Journal of Economics 112.2 (1997). In the study, subjects were assigned simulated conditions that were similar to making portfolio decisions on a monthly or yearly basis.
The Impact of Frequent Portfolio Reviews
Research indicates that investors who review their portfolios too often (monthly or more) tend to become risk-averse, leading to lower equity exposure and potentially compromising long-term return targets. Frequent monitoring can trigger emotional responses and impulsive decisions that may not align with an investor’s long-term goals.
Adopting a Strategic Review Cadence
To mitigate the effects of market volatility and avoid behavioral biases, we recommend evaluating your portfolio on a quarterly to annual basis. This approach lets you focus on long-term objectives rather than short-term market fluctuations. Working with a financial advisor can help you adhere to this strategy through professional guidance and a disciplined investment approach.
The Beauty of Balance
While market volatility is an inherent aspect of investing, adopting a balanced review cadence and seeking professional advice can help you navigate these fluctuations effectively. By staying invested and avoiding impulsive decisions, you’re positioned to achieve better long-term returns and meet your financial goals.
If you recognize your tendency to review your portfolio often, let’s talk! We’d love to discuss strategies for helping you stay invested and meet your goals.
