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I’m going to tell you something no other portfolio manager will tell you.
And if I’m being honest, it’s pretty hypocritical. And bad for my business.
But the truth is you shouldn’t be checking your portfolio all the time.
In fact, you would likely be better off if you never checked your portfolio…
…because your human nature works against you every time you do.
The Psychology of Investing
Humans are by nature emotional beings.
Our emotional responses are rooted in the primal fight-or-flight mechanism, designed to protect us from immediate dangers. But when it comes to investing, these instincts can prompt knee-jerk reactions to short-term market fluctuations, leading to decisions that are not in our best long-term interest.
This is an issue because investing in stocks and crypto is notoriously volatile.
For instance, the S&P 500 undergoes corrections (a decline of 10% or more) about every 1.5 to 2 years on average. That’s in addition to intraday swings of more than 1% around 50 to 60 times per year.
Constantly checking your portfolio - especially on down days - can l
ead to “panic selling,” which is the enemy of long-term investment returns.
And it pays to keep these “animal spirits” under control.
Get Yourself Under Control
The fear of loss can drive us to sell at the bottom, while greed can tempt us to buy at the peak—both actions detrimental to our financial health.
Not frequently checking your portfolio is a strategy that helps mitigate this emotional rollercoaster. By distancing ourselves from the daily ups and downs of the market, we reduce the temptation to make impulsive decisions based on momentary feelings rather than rational, long-term strategies.
Not checking your portfolio - at least not often - helps create a buffer between our emotional instincts and our investment actions.
In essence, less frequent portfolio reviews can act as a safeguard, helping us to stay the course and remain aligned with our long-term investment goals, free from the sway of transient emotions.
Because as we’ve said, volatility is a feature, not a bug, when investing in stocks and crypto. Historically, the S&P 500 has experienced an average annual volatility of around 15-20%.
As anyone who had money in the market during the 2022 bear market knows, it hurts to see your portfolio lose 20% (or more!) in value.
And bitcoin is even more volatile. The cryptocurrency has undergone several major corrections throughout its history, with price drops of over 80% from peak to trough in some cycles. For instance, after reaching nearly $20,000 in December 2017, Bitcoin's price plummeted to around $3,200 by December 2018.
More recently, in 2021, after Bitcoin reached a then-all-time high of nearly $65,000 in November 2021, it faced a sharp decline, dropping to about $15,000 by November 2022.
And with smaller cryptocurrencies, the volatility is even more intense as many tokens like Solana (SOL), Ripple (XRP), and others averaging daily volatility swings of 8%:
Again, these are all normal fluctuations. And until you are comfortable with them, you should mostly “buy and hold” your investments.
Because otherwise, you will set yourself back from reaching your investing goals.
You’re Not That Guy, Pal
I can already hear some of you now:
“But Robert, how am I supposed to sell at the top and re-buy at the bottom like a real investor if I’m not constantly checking my portfolio?”
Here’s my answer: you don’t.
A study by J.P. Morgan Asset Management revealed that if an investor missed the ten best days in the S&P 500 over a 20-year period, their returns would be significantly lower than those who remained invested throughout.
Plus, trying to time the market leads to emotional decision making… which is exactly what we’re trying to avoid.
Fear and greed can cause investors to buy high and sell low, the opposite of successful investing strategies.
Keep Your Head on Straight
While the allure of timing the market and making quick gains may seem tempting, it's a strategy fraught with risk and prone to emotional decision-making.
The reality is, most of us aren't equipped to outsmart the market consistently.
Instead, embracing a long-term investment strategy, understanding the inherent volatility of the market, and resisting the urge to react to every fluctuation can lead to more substantial and sustainable returns (if you want to learn how I invest my own money, you can see my full portfolio here).
Remember, investing is a marathon, not a sprint. By focusing on your long-term financial goals and maintaining a disciplined approach, you can navigate the ups and downs of the market more effectively.
So, next time you feel the itch to check your portfolio constantly, remind yourself of the bigger picture. Trust in your investment plan, stay the course, and let time and compounding work in your favor.
Stay safe out there,
Robert