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Smart Investment Monitoring: Finding the Right Balance

Navigate the Pitfalls of Overchecking and Maximize Portfolio Growth

As an investor, checking in on your investments periodically to track their growth is natural. However, experts caution against constantly monitoring your portfolio’s performance.

Why Constant Monitoring Is Discouraged

“Checking investments too often can tempt you to tinker with already well-allocated investments. Frequently adjusting tactics and trying to maximize profits raises the risk of losses,” said Amit Sarkar, an investment advisor at Upstox.

While there’s no strict rule on when to rebalance investments, many investors review them annually, quarterly, or monthly. Others change when an investment exceeds a certain threshold, like 5% of total holdings.

Rebalancing Too Often Carries Risks

Another wealth adviser, Mohammed Suhail, warned: “Rebalancing too frequently can lower returns. “Costs include transaction fees, inadvertent higher risk exposure, and selling assets as they appreciate.

Most portfolios don’t require frequent rebalancing. Every trade incurs transaction fees, so rebalancing too often can be costly. Annual or semi-annual check-in is usually sufficient.

Research shows optimal rebalancing is too frequent (monthly or quarterly) and too infrequent (every two years or more). For many investors, annual rebalancing is ideal.

How Long Can You Go Without Checking?

While frequent check-ins aren’t necessary, it’s still important to monitor investments. Shakeel said you can likely go months without checking as long as you’re aware of broader market movements.

“Initially, I monitored investments for hours daily, reacting to every tip and advice. I follow news and trends now, but constant financial channel tuning is unnecessary,” said Mahesh Mohan, an expat investor in stocks and Mutual Funds.

“I used to sell investments in panic whenever they dropped steeply. But now, I check every few months to ensure my investments haven’t become unbalanced or disproportionate,” added Mohan, who has been investing for over thirty years.

Revisit Strategy Based on Financial Goals

For many, investing saves for retirement, education, and other life events. After setting goals and building a diversified portfolio, investments grow over time. But as situations change, adjustments may be needed – that’s where portfolio rebalancing comes in.

“Portfolio rebalancing essentially tunes up my investments. It aligns my risk tolerance with long-term goals and let me review my investment types,” said Mohan.

However, rebalancing too often can be costly. “Just because you can adjust your portfolio with every market glitch or news headline doesn’t mean you should. You could be doing more harm than good,” added Kumar.

Key Takeaways

“The key is balance. You don’t want to leave your portfolio untouched, but you also don’t want to be an overly hands-on investor. The simpler your strategy, the less often you’ll need to watch it,” said Kumar.

He recommends avoiding daily or even weekly checks. “If you don’t plan to use your money within the next five to seven years, daily swings shouldn’t matter much. And if you do plan to use it sooner, it probably shouldn’t be invested in the first place.”

Shakeel suggests checking investments at least once a year and at most once every three to six months. Changes may be needed when an investment’s proportion has risen or fallen due to price changes, potentially throwing the portfolio off balance.

Balancing Act: Monitoring Investments Without Overdoing It

In conclusion, while monitoring investments is important, investors must strike a careful balance. Regular check-ins and adjustments can lead to impulsive decisions, increased risk, and costly transaction fees that hinder long-term growth. Experts recommend reviewing portfolios at most once every three to six months unless major life events necessitate changes to financial goals.

Annual rebalancing is frequently the best option to ensure that allocations match one’s time horizons and risk tolerance. By resisting the temptation of constant tinkering, investors can maintain discipline, avoid emotional reactions to short-term market swings, and give their well-designed strategies time to work towards their intended objectives. Despite the daily commotion of the market, have a calm, patient approach and don’t lose sight of the greater picture.

Hisham Nazar

Hisham Nazar, a seasoned financial expert, is committed to empowering individuals to seize control of their financial destinies. Armed with an MBA in Finance from Jawaharlal Nehru University, New Delhi,… More »

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