To look or not to look.
That’s the question when people consider checking the balances in their investment and retirement accounts.
Maybe ignorance is bliss amid a volatile stock market’s recent sequence of selloffs.
The S&P 500
entered a technical bear market on Monday. The 20% slip from an early January peak blotted out an estimated $9.3 trillion in market value among the companies comprising the benchmark. Those kinds of numbers can be hard on the eyes, not to mention the stomach.
On Tuesday, the S&P 500 sank deeper into bear territory and White House press secretary Karine Jean-Pierre acknowledged Americans are becoming rattled by the flailing markets.
On Wednesday, the U.S. Federal Reserve will announce its policy decision on the benchmark interest rate, and release updated economic forecasts at 2 p.m. Eastern time on Wednesday, a decision that will be closely watched by the markets. Powell will host a news conference at the Fed’s Washington headquarters at 2:30 p.m.
“‘When markets are volatile, it’s often hard for investors to look away, but staying the course when you have a plan in place is typically a good decision.’”
— Leanna Devinney, Fidelity Investments
These are all good events to follow. Knowledge is power, after all. But what about knowledge about how your portfolio is holding up?
In a pullback, there’s bound to be investing bargains and portfolio rebalancing opportunities. Taking those steps starts with a review of the portfolio to spot the winners and losers.
As such, there are arguments to look and not to look, investing experts told MarketWatch.
Specifically, it depends on the type of person you are, the type of account you have and the time before you need the money, advisers noted. Can you stomach big swings in the value of your portfolio? How close are you to retirement?
“When markets are volatile, it’s often hard for investors to look away, but staying the course when you have a plan in place is typically a good decision,” said Leanna Devinney, vice president, branch leader at Fidelity Investments.
“If you find yourself checking balances often, make sure you’re also keeping mind what your long-term goals are and the fact that attempting to move in and out of the market can be costly,” she added.
“‘Human behavior is the most impactful variable on money management and personal financial outcomes.’”
— Eric Cooper, Commonwealth Financial Group
“It would be great if the answer was simple and universal. Like most things in life, the answer is a little bit more nuanced,” added Eric Cooper, financial planner at Commonwealth Financial Group. “Human behavior is the most impactful variable on money management and personal financial outcomes.”
“When we understand that, the answer to this question becomes one primarily governed by an intent to mitigate the flaws of misaligned (or myopic) human perspective and only secondarily one of tactical strategy,” said the Bedford, N.H.–based adviser.
Put simply, if you’re the type to panic, don’t look.
To be clear, no one’s advocating hourly account balance check-ins. And no one’s calling for complete disregard for lengthy, indeterminate stretches. Some research suggests when bad financial news comes for an account, people avoid looking at the negative information in the so-called “ostrich” effect.
There’s still a spectrum between the extremes when to comes to peeking at investment performance. Below is a guide to see where you fit.
When to look away
“If you are 10-plus years away from retirement, there is no need to check your 401(k) balance on a regular basis,” said Danika Waddell, the founder and president of Xena Financial Planning who only checks her retirement accounts once a quarter.
After all, most Americans must be 59½ years old to withdraw freely from their 401(k) plans and traditional IRAs without incurring a hefty penalty, so they have to ride out the valleys and peaks, and resist drawing down that money in a down market.
If a person has an account they do not need to tap for at least seven years, it “should be periodically monitored, but not regularly stared at,” Cooper said. That means a quarterly, semi-annual or annual review should suffice. It becomes a different calculation when the time horizon is shorter, Cooper acknowledged.
“‘I wouldn’t want to weigh myself every day. Over time, sure, but the daily fluctuations are virtually meaningless.’”
— Danika Waddell, Xena Financial Planning
There’s the emotional factor too. “Psychologically, most people simply don’t thrive when their nose is immersed in the rollercoaster of their account balances in a volatile market — regardless of their time horizon,” Cooper said.
Think about what’s going to produce more anxiety: Checking often or checking less, Waddell said. If checking more than once a month causes anxiety, don’t do it. But if quarterly checks feel too far away, go with monthly or weekly checks that feel like a less stressful frequency.
But there’s no point in daily checks, which Waddell likened to daily trips to the scale. “I wouldn’t want to weigh myself every day. Over time, sure, but the daily fluctuations are virtually meaningless.”
When to watch
Time horizons and temperament are two things to keep in mind on the question of persistent peeping.
So is the type of account — and if it’s a brokerage account, that’s a strong reason to look more often, according to Todd Minear, a managing member of Open Road Wealth Management, in Liberty, Mo. One reason is the spot a portfolio’s laggards and dump them for tax purposes, he explained.
Selling assets, like stocks, at a loss can give owners a capital loss they can apply against capital gains taxes. If the amount of losses exceed the gains, the Internal Revenue Service will let a taxpayer deduct losses up to $3,000 against their income.
Batching losses and strategically selling is tax loss harvesting, and it’s a strategy some investors may want to consider for their brokerage account Minear said.
“if you want to switch from a traditional IRA to a Roth IRA, that’s one reason to keep closer tabs on how your account is performing.”
Rebalancing an IRA or a 401(k) account by adding and omitting certain investments does not result in a tax event the following tax season. But if you want to switch from a traditional IRA to a Roth IRA given the market pullback, that’s another reason to keep closer tabs on how their account is performing, Minear said.
In a Roth IRA, contributions are not deductible, but distributions come out tax free. If you expect to be in a higher tax bracket when tapping the money for distributions, it could be advantageous to get the tax liability out of the way sooner. Converting from a traditional IRA to a Roth IRA requires the cash on hand to pay the tax bill attached to the switch.
An account with values beaten down by market forces is going to result in a smaller tax bill for conversion, Minear explained. Of course, you’ve got to check your account balance first to even start considering the move.
That gets back to the subject of retirement accounts and how closely people should be watching if retirement dates are approaching.
“‘Major swings today may or may not be fully recoverable by the time in which you expect the money to have some withdrawal demands.’”
— Eric Cooper, Commonwealth Financial Group
People who will need to start using account money in the coming three to six years, an intermediate time frame, might have to pay “a little more attention because major swings today may or may not be fully recoverable by the time in which you expect the money to have some withdrawal demands,” Cooper wrote. Think quarterly or monthly reviews here.
For people who need account money in two year or less — maybe cash for a down payment on a house or distributions to start retirement — Cooper said you should remain “engaged with the portfolio.”
That’s where monthly, or biweekly checks by the investor or their adviser are appropriate, Cooper added.
Ultimately, it’s a balance of priorities, personality (yours) and the kind of portfolio you have.
“What I hear from nonclients is ‘Yeah, I just don’t even open my statements.’ ” But, he added, “A person who doesn’t know what’s going on can have a lot of anxiety.”
Still, there’s a limit on account peeks, Minear added: “Don’t pull it up on your app five times a day.”
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