Dubai: As an investor, it’s only natural in wanting to check in every now and then to see if your investments are growing or not. But how often do you need to monitor your investments? Because experts warn that it’s not a good idea to always know how your portfolio is performing. Here’s why...
“Checking your investments too often can tempt you to fiddle with investments that are already aptly allocated. Frequently adjusting your investment tactics and constantly trying to maximise your profits raises the risks of losses,” cautioned Zubair Shakeel, a UAE-based investment advisor.
“While there is no hard-and-fast rule on when to move your investments around, many investors make it a habit to revisit their investments annually, quarterly, or even monthly. Others decide to make changes when an investment exceeds a threshold such as 5 per cent of your total holdings.”
This is why it is recommended to check your investments every once in a while to ensure your investments are balanced. This is what it means to ‘rebalance’ your investments. You don't want to suddenly find out one day that you're 85 per cent invested in volatile tech stocks, for example.
Risk to rebalancing your investments too frequently
“Rebalancing too frequently can come at the cost of lower returns,” said Mohammed Shaan, another UAE-based wealth advisor. “This is because the costs of rebalancing can include transaction fees, inadvertent exposure to higher risk, and selling assets as they are increasing in value.
“Most portfolios don't need to be rebalanced too often. Every time you rebalance, you are likely to incur transaction fees for every trade. There's a cost to rebalancing too frequently. Once a year or once every six months for a rebalancing check-in should usually do the trick.”
Research shows that optimal rebalancing methods are neither too frequent, such as monthly or quarterly calendar-based methods, nor too infrequent, such as rebalancing only every two years. For many investors, implementing an annual rebalancing is optimal.
How long can you go without checking your investments?
However, even as there's no real need to check in on your investments too frequently, it doesn’t diminish how important it is to still keep an eye on them. You can probably go months without a check-in as long as they are paying attention to broader market movements, said Shakeel.
“Initially, I did find myself monitoring investments for hours a day, reacting to every stock tip and piece of advice. Now I still follow news and market trends, but I feel tuning in constantly to financial channels is unnecessary,” said Aditya Munjuluru, an expat with investments in stocks and bonds.
“I used to sell my investments in panic whenever they dropped steeply. Now I just check them every few months to ensure the amount I’ve invested in each investment hasn’t gone out of balance or swung disproportionately,” added Munjuluru, who has been investing for over three decades now.
I used to sell my investments in panic whenever they dropped steeply. Now I just check them every few months to ensure the amount I’ve invested in each investment hasn’t gone out of balance or swung disproportionately
Revisit your investment strategy based on your financial goals
For many, investing is how money is saved for retirement, college education and other life events. After setting financial goals and building a diversified portfolio, investments grow over time. But as the years go by and situations change, there may be need to adjust those investments.
That’s where portfolio rebalancing comes in. ‘Essentially, portfolio rebalancing acts as a tune-up for my investments. Doing it helps align my tolerance for risk with my long-term financial goals and gives me a chance to review the types of investments I hold,” said Munjuluru.
Rebalancing your investments too often can have costly consequences. “Just because you have the ability to adjust your portfolio with every glitch in the market or news headline that pops up on your screen doesn’t mean you should. You could be doing more harm than good,” added Shaan.
Key takeaways?
“So the key is striking a balance. On one hand, you don’t want to leave your portfolio completely untouched. On the other hand, you also don’t want to be a helicopter investor. The bottom line is that the simpler your investing strategy is, the less often you’ll need to watch how it’s working.”
Shakeel recommends avoiding daily or even weekly checks. “If you don't plan to use your money within the next five to seven years, these daily swings shouldn't matter to you that much. And if you do plan to use your money sooner, it probably shouldn't be invested in the first place.
“Check your investments at least once a year and at most once in every three to six months. When do you need to make changes to investments? One instance is when the fraction of an investment you have has risen or fallen with price changes, as this could put the portfolio out of balance.”
