We live in the Twitter Age, where information is continually at our fingertips. The data stream is relentless, and it often comes in bits and pieces.
But there is such a thing as TMI – Too Much Information – especially when it comes to managing your investments.
Why? Here are two good reasons:
– Believe it or not, most of the financial market information we receive on a daily basis is meaningless – just random noise that cannot be relied upon to make wise investing decisions. A day of bad news – or good news – does not a trend make.
– A continual flow of information plays into human behavioral quirks that can cost you money if you don’t understand them.
Here’s a good illustration, exaggerated a bit to make the point. I call it the “Good Decision/Bad Decision” conundrum.
Suppose the mutual fund you bought at $100 per share has dropped to $50. You decide to sell. Was it a good decision or a bad decision?
– In two weeks, the price drops to $25. You feel good about your decision.
– Next, it rises to $60. You feel bad about your decision.
– Then it falls to $40. You feel good.
– Now it rockets to $125. You feel bad – really bad.
Where is this fund’s return going? You have no idea. But watching it continually has put you on an emotional roller coaster and increased the chances that you’ll buy or sell for all the wrong reasons.
So, how often should you check on your investments? Some research suggests perhaps only once every 1 or 2 years, but I think quarterly is a good rule of thumb.
Remember, this investment check is less about performance and more about reviewing your reasons for being in your investments. Investing trends come and go. Sometimes large cap stocks dominate, sometimes small cap, then international. Sometimes growth investors have a field day, only to have the momentum or value investors take the lead.
Chasing these trends will certainly leave you under-performing the market. Look at the quarterly investment check as an opportunity to evaluate your strategy. If it is fundamentally sound, stick to it regardless of the market’s gyrations.
Bottom line: Time is the cure to TMI. Time gives context and perspective to information. Continually checking your investments is a good way to tinker your way into losses rather than profits.