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While a well-designed retirement plan can be relatively self-contained, you should get into the habit of periodically checking in on your investments to make sure everything is going as planned. However, obsessively checking your retirement funds can lead to a host of problems, from undue stress to increasing the likelihood of making poor, emotionally charged decisions.
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So how do you find the balance between obsessing over your retirement funds and neglecting them? Here’s why, when and how to monitor your retirement funds.
When should you regularly check your funds
While appealing, the idea that you can “set and forget” any type of investment plan is outdated. Changes are happening at lightning speed in today’s financial markets, where news is delivered instantly and machines can trade thousands of stocks in a fraction of a second. In this type of environment, you will need to keep an eye on your wallet. Here are the times when you should check your funds regularly.
When you are going through a major change in your life
Anytime you go through a major life change, it’s a good time to review your portfolio. This is because your investment objectives and/or risk tolerance may have changed. For example, when you get married, you now have to think about a potential spouse and children. Many newly married couples also want to buy a house. It may change the way you should invest when you were single and only had to worry about funding your own lifestyle. The same goes for other major life changes, whether it’s having a new baby, getting divorced, or experiencing a death in the family.
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On a calendar basis
The best way to keep emotion out of your investment is to automate your contributions and check your accounts on a calendar basis, rather than when impulse drives you. By setting a schedule to check your accounts annually or quarterly, you will review your accounts methodically rather than emotionally. A quarterly account check should be frequent enough that you can remove any positions that no longer meet your needs or take on new investments that are good opportunities.
In getting older
As you age, you generally want to reduce the level of risk in your investment portfolio. This doesn’t mean you should sell all your stocks and buy Treasuries, but it does mean you may want to lighten your more speculative positions. When you’re young, you have time for the market to recover from any downtrend, but a 20% selloff by the time you retire could be devastating to your long-term financial plan.
When there’s a major market drop – but don’t overreact
When there is a significant decline in the stock market, it can be an excellent time to add long-term positions. The caveat here is that investors can often get emotional when markets are down sharply, so you’ll need to be careful to act rationally and not based on your fears. You will especially want to avoid selling positions when the markets are down if their long-term stories are still intact.
When Should You Leave Your Retirement Funds Alone
As stated above, tracking your retirement funds is an essential part of a successful financial plan. But like many things in life, too much of a good thing can ruin it. Here are the times when you should resist the urge to check your retirement funds because the risk of making the wrong financial decision increases.
When you are experiencing trauma or distress
Investing is often an emotional process. If you get too excited about the market reaching new highs, you could dump a lot of money at the very top. Conversely, if you’re too scared when the market is selling hard, you might withdraw your money just when it’s about to rally. Since emotion is the enemy of investing, making important financial decisions when you’re going through a period of trauma or distress is a terrible time to take a look at your portfolio.
If you just checked an hour ago
Checking your wallet too often is a recipe for making too many changes. Not only can overtrading result in additional fees or taxes, but trading too often is usually a recipe for poor investment performance. If you find yourself checking your wallet hourly or even daily, it might be time to take a step back.
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