How often should I check my investments?


 Q. I sometimes find it hard when I see all the ups and downs of the stock market. I know I have to watch my investments but I know watching too much is bad. When should I look, and when should I take action if things are going downhill?

A. Looking too often can make you crazy — depending on your mindset. Let’s start with some basics.

Volatility is the up/down movement in financial markets and is a fact of life, said Jim McCarthy, a certified financial planner with Directional Wealth Management in Rockaway.

“Risk is the possibility of a loss. A loss is the undesirable outcome of a risk,” McCarthy said. “Remember that gains are the desirable outcome of a risk. With any asset, a loss or gain only occurs when the asset is sold. Until an asset is sold, it only increases or decreases in value.

McCarthy said if you are managing your own investments, you need to create a threshold after which you feel like saying “uncle.” In order to establish an appropriate threshold, you need to consider your risk tolerance, which is your ability and willingness to take risk.

“Ability factors include your age, income and spending, and overall financial wealth,” he said. “Willingness is your individual preference, and how averse you are, to volatility and potential loss. Some people have the ability to take risk but are unwilling to do so, while others are willing to take risk but really don’t have the ability to do so.”

McCarthy said your risk tolerance should then guide your asset allocation.

Generally, the more diversified your portfolio, the lower the overall volatility and risk you will experience.

“Think of it like planning a trip to a new destination with variable weather conditions,” he said. “You would want to pack a variety of clothing so as to be prepared for any type of weather.”

With investments this may mean owning a variety of assets such as stocks, bonds, commodities, real estate and cash. Within each type, or asset class, you should further diversify. For example, in stocks you would want to own companies in different industries and of different sizes (large and small). In bonds, you might consider some government and some corporate bonds. In commodities there are metals (gold, silver), energy (oil & gas) and agriculture (corn, beef), McCarthy said.

You also need to be mindful of your time horizon. Ask yourself how long is it to the goal you are trying to achieve.

“Historically, the stock market has seen more positive returns than negative returns — past performance does not guarantee future results,” he said.

According to Morningstar, from 1926 to 2014, the S&P 500 Index had flat or negative returns in 25 years but had positive returns in 64 years, or approximately 72 percent of the time.

The longer the time you have the better you can ride out the ups/downs in financial markets, McCarthy said.

“So how often should you check your investments and when should you take action? In my opinion, you should check no more than a couple of times a month until you start approaching your “uncle” point,” McCarthy said. “The nearer you get to your threshold, the more often you should check.”

Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton, likes looking quarterly so you can be sure things are moving in the right direction.

But, he said, it’s important to realize that you should not sell a mutual fund investment because it is down, especially if that sector is down.

“You sell it because it is underperforming its peer group over a reasonable period of time,” he said. “Every sector will be hot and cold over a period of time. Make sure that when it is down, you rebalance into that sector, and when it is high, sell out of that sector.”

Lynch said he’s a fan of setting this up to happen automatically so that investors can take the emotion out of it.

“Looking at it daily will make you crazy and generally will lead to you making very emotional investments,” he said. “Review the performance of the funds versus the indexes in those categories so that when you compare them, it is a fair comparison.”

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This story was first posted in February 2015. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.