Dubai: Do you often find yourself constantly obsessing over every detail of your investment portfolio? Are you always checking in, even when it's clear your investments are doing pretty well on their own? If so, you may be what experts commonly refer to as being a ‘helicopter investor’.
“You may have heard of ‘helicopter parenting’ in reference to the mom or dad that hovers over every aspect of their child's life. If you have a similar approach to investing, it may be costing you money as well as your peace of mind,” said Zubair Shakeel, a UAE-based investment advisor.
“Checking your investments too often can easily tempt any investor to fiddle with investments that are already aptly allocated. You may then sell or buy based on emotion, like when investments go down slightly, you'll get angry and sell, or you’ll buy more when you’re happy seeing them rise.”
How often do you need to monitor your investment account?
As an investor, while it’s only natural in wanting to monitor how your investments are doing, it’s not a good idea to always know how your portfolio is performing, because frequently adjusting your investment strategy and constantly trying to maximise your profits raises the risks of losses.
“Avoid checking your portfolio daily or even weekly. 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,” added Shakeel.
“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.”
How long can you go without checking your investments?
So while monitoring your investments is important, there's no real need to check in on them that frequently. Most people can get away with looking at things once a week, and could probably go months without a check-in as long as they are paying attention to broader market movements.
“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, a UAE 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.
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 as well. 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,” added Shakeel.
“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.”
Bottom line?
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 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.
However, even rebalancing it 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 Shakeel.
“The key is striking a balance. On one hand, you don’t want to leave your portfolio completely untouched. On the other, you also don’t want to be a helicopter investor. The bottom line is the simpler your investing strategy is, the less often you’ll need to watch how it’s working.”
