The Planner's Perspective: How Much Is Too Much?
By Paul Morrone CFP®, CPA/PFS, MSA
Excessive scrolling through social media news feeds, a multitude of smartphone apps and news outlets shoving all kinds of information (accurate, or not) down your throat and it’s easy to be over-informed and under-educated. This can pose a serious threat to a comprehensive savings and investing plan if the hot news story of the day is used to make long-term investment decisions. The savvy investor knows that daily, monthly, quarterly and in many cases annual fluctuations in their account are largely meaningless if your time horizon is 20 or 30 years away.
Think about when you first got a retirement plan (401(k), 403(b), etc.) through your employer. Their popularity surged in the 90s, but many people had access to them in the 80s. Aside from the Black Monday Crash in October of ‘87, markets were largely docile through the 80s and 90s, interest rates were consistently falling and it was, overall, relatively painless to stay invested. Without readily accessible internet connections, most investors did not pay much attention to their retirement plans aside from the periodic statements they received in the mail. In addition, making changes to investments required picking up the phone, waiting on hold and manually placing a trade in your account. Compare that to today, and it is easy to see why many people execute irrational trades based upon flawed information. While it would not be prudent to take the ‘ignorance is bliss’ approach with your long-term investments, we do recommend that emotional investors look at their accounts less frequently.
An ideal timeframe would be quarterly. Consistent with the long-term investor’s mindset, these quick reviews should not be anxiety provoking, but rather informative, and one bad quarter should not be used as the basis to completely overhaul your investment plan. Even though a 3-month period is too short to judge success in terms of long-term performance, it represents a reasonable period of time to ensure that you as the investor are informed and aware of what is going on with your savings. This knowledge is critical to understanding your progress towards your future savings goals and how your assets align with your bigger picture goals.
If you are working with an advisor, they should be in contact with you at least once a year to review your overall financial plan and discuss new/revised goals you may have, savings/spending relative to plan benchmarks, and, of course, your portfolio’s performance (among many other things). As part of the performance review, you should have an understanding of what worked and didn’t work over the past year, and what changes, if any are recommended going forward to keep you on track. In addition, there should be a periodic analysis of your risk tolerance and time horizon to ensure that the assets in your portfolio reflect your current mindset and goals.
