The desire to keep an eye on your money is natural. But doing it too often can hurt you, and your money. Let us look at why this is so.
We always want to see our portfolio growing. But ups and downs are a part of life. This rule also applies to your portfolio. In life, to succeed, you have to be deal with good times and bad times. And so should you let your portfolio. If you’ve invested judiciously and based it on sound advice from experts you trust, you can rest assured that your investments will do well in the long run. This has been proven time and again.
Looking at your investments obsessively every other day is not going to increase their value. It will only increase your stress levels. And drive you to make some less than intelligent decisions. Stress leads to poor decision-making. And poor decisions can hurt your financial health deeply.
For example, you happen to browse your investments. You spot some schemes that aren’t doing well at that point in time. You get stressed. This drives you to ignore the fundamentals and behave irrationally. You are pushed into a knee-jerk reaction, which will not pan out well. This is the Principle of Loss aversion playing havoc with your financial health.
First stated by Daniel Kahneman and Amos Tversky, in 1984, Loss Aversion refers to the fact that people dislike losing money more than making it. What this means is that the person who loses $100 loses more satisfaction than the satisfaction gained by someone who gains $100.
It’s funny how the human mind works. You should be careful not to let it lead you astray.
What does the Principle of Loss Aversion have to do with checking your portfolio? See, the stock market is a volatile beast. Over long periods of time, it tends to go up. But on any given day, it’s a rollercoaster ride of ups and downs.
Scientific studies suggest that losses are twice as powerful, psychologically, as gains. There is a significant correlation between degree of loss aversion and strength of activity in both the front medial cortex and the ventral striatum of Brain. In other words, we perceive losses more strongly than equivalent amount of gain.
If you log in every day to check your portfolio, there’s a 50% chance that it will be up and you’ll feel a little happy. But there’s also a 50% chance that it will be down, which will make you more unhappy.
When investments are based on a certain objective in mind, mostly for long term, there’s nothing to gain from checking on them repeatedly. Just let them do their job. Don’t let your insecurities bring down their performance. Time and again, it has been proved that good returns accrue when you are committed to the long term growth story that the market and economy promises. The key to successful investing lies in believing in yourself and your investment advisor.
That said, why do we give you the choice of logging in and keeping track of your investments? This is because you have trusted us with your hard-earned money. We consider it our duty to give you the freedom to keep an eye on how our decisions are working for you.
We also believe you are mature enough not to succumb to the vagaries of the fickle mind.