Why Watching The Market Hurts Your Returns (And How to Stop) (EP.193)

0:28We all need to make smart decisions with our money. Sounds counterintuitive, but the more frequently you check your portfolio, the more likely you are to make costly mistakes. And research backs this up. Think about it. The digital age has made access to stock market data and real-time portfolio values easier than ever. But instead of helping investors, this constant stream of information often leads to short-term thinking, panic-driven decisions, and ultimately, lower returns. The problem stems from myopic loss aversion. You may be familiar with loss aversion, which is the behavioral bias that makes us feel the pain of losses about twice as intensely as the pleasure of equivalent gains.

1:13Myopic loss aversion is the idea that the more frequently we evaluate our portfolios, the more likely we are to see losses, which triggers those emotional reactions due to loss aversion and can derail a long-term investment strategy. The impact of myopic loss aversion isn't just theoretical. It's been proven by research, and I linked to that research in the show notes at thelongterminvestor.com. And in fact, one study shows that investors who receive the most frequent feedback on their portfolio performance tend to take on less risk than optimal, leading to lower long-term returns. Why? Because seeing short-term losses, even small temporary ones, cause anxiety.

1:58And that anxiety drives poor decisions like selling investments after a decline or hesitating to reinvest after a downturn. And the result is that many investors miss out on the market's long-term growth. So consider this. If you look at the S &P 500 every single day. You have about a 47 % chance of seeing a loss. So that means nearly half of the time, checking your portfolio will make you feel like you're losing money, even though markets tend to rise over the long run. But historically, if you check less often, your odds of seeing a loss drop significantly. Checking the market on a monthly basis gives you a 38 % chance of a loss, annually a 21 % chance of a loss, every five years a 12 % chance of a loss, and historically, if you only looked at the S &P 500 once every 20 years, there was never a loss.

2:56So you could maybe imply that there's a 0 % chance of a loss. I don't really like 0 % and 100%, but you get my point. And long-term investors, whether they're in their 30s, 50s, or already retired, they all have a multi-decade time horizon. Yet, by evaluating portfolios in a daily or even quarterly intervals invites unnecessary stress and poor decision-making because it causes investors to lose sight of the big picture as their mental time horizon shortens to match the frequency of their feedback rather than that of their planning time horizon. Now, if frequent portfolio monitoring leads to worse outcomes, what can you do to break the habit?

3:40There are a few strategies. I think the simplest one is just to limit how often you check your portfolio. Maybe even decide in advance how often you'll evaluate your investments. And for what it's worth, I personally only look at my portfolio values once a year. And it's really just when I'm updating my net worth statement. And when you look at your portfolio at predetermined times, it reduces the likelihood of getting caught on the emotional roller coaster of those short-term market swings. Another idea, and I think this is a really, really good one, is just to delete your stock market apps and turn off financial news notifications on your phones.

4:19While it's important to not check your portfolio too often, regularly checking in on the overall market is equally harmful. Your phone is not designed to make you a disciplined investor. In fact, it's designed to do the exact opposite, drawing your attention to unnecessary noise. Other ideas is you really just need to be focused on your financial plan, not on daily price movements. Because if you built a portfolio for decades, not days, then your investment policy statement and the reasons behind your allocation decisions are really going to be driven by that financial plan. And lastly, I would suggest you reframe how you evaluate success.

5:01Instead of judging your portfolio based on recent returns, maybe you could measure success by how well you stick to a strategy and whether you're making decisions based on evidence rather than emotions. It's no surprise I don't think that investing success is about reacting to daily market moves, but instead it's about having a plan and sticking to it. and the less often you check your portfolio, the better your returns are likely to be. So do yourself a favor, step away from the stock tickers, tune out the short-term noise, and focus on the big picture. Your future self will thank you. Before closing out, I did quickly mention there my net worth statement and how I fill it out once a year.

5:44If you'd like to download the same template that I use personally, there is a link in the episode description of your podcast app. And as always, you can find links to that resource and all my resources in the show notes at the long-term investor.com. Thanks for listening and to long-term investing. Thanks for listening to the long-term investor podcast. To access free financial resources and submit questions to be answered on the show, visit the long-term investor.com. Peter Lazaroff is an employee of PlanCorp and BrightPlan. All opinions expressed by Peter and any podcast guests are solely their own opinions and do not reflect the opinions of PlanCorp or BrightPlan.

6:27This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of PlanCorp and BrightPlan may maintain positions in the securities discussed in this podcast.