How to Track Your Investments
Two key parts of investing are how much money you contribute and how your investments perform. Tracking that performance will show you how much more money you need to put in to to hit your investing goals. But how important is monitoring your investment performance? Should it be done on an annual, quarterly, monthly, or weekly basis? Or should you just leave well enough alone and just keep investing your funds periodically?
Why You Should Track Your Investments
There are two great reasons to keep tabs on your investments, keeping the right balance of investments in your portfolio and tracking progress towards your goals.
Know When to Rebalance
It’s recommended that you rebalance your investments at least once per year to keep your asset allocation in line with your investment risk profile. Take the mix of stocks and bonds in your portfolio for example. If your goal is to have 70% of your investments in stocks and 30% in bonds, it won’t exactly be that amount every day. If stocks skyrocket, your balance might swing to 77% stocks and 23% bonds. Rebalancing is selling off some of the stock investments and reinvesting the dollars into bond investments to get back to a 70%/30% mix. If you don’t monitor your investments, you won’t know how badly your investments need rebalancing.
Track Progress Towards Your Investing Goals
Without knowing how your investments are performing, how can you track your progress toward your retirement goal? If you have a great stretch of years with large growth in your investments that puts you ahead of your goals you might decide to invest some of your retirement savings in something other than the stock market. On the other hand, if your investments have poor performance you might need to put more dollars in every year. If you aren’t tracking those investments you don’t know whether or not you need to adjust your investment strategy.
Why You Shouldn’t Monitor Your Investments
Keeping tabs on your investments is a great thing, but you can easily overdo it. Constantly monitoring your investments can be an emotional drain and can cause you to make rash decisions.
Emotional Reactions
The stock market and your portfolio are going to have regular ups and downs. Sometimes severe ups and downs. The worst thing you can do when your portfolio takes a serious change is to panic. If you are constantly monitoring your investments you are more apt to try and make constant changes. You are better served to set a steady course and not panic when things change drastically overnight.
So we’ve looked at the good and bad implications of keeping regular tabs on your investments, now we’ll talk about a few different ways to track your investments.
Investment Brokerage Firm
The easiest way to monitor your investments is through your brokerage firm or mutual fund company. Since they hold your investments this requires the least amount of setup, they have a record of what you own and report on it. Some fund companies make tracking tools available even if you don’t hold investments through them – for example the T Rowe Price Portfolio Manager.
Whether through paper statements or online, you should be able to get access to your short and long term performance through your brokerage account. Online access is obviously easier, but you have to be careful that you don’t become obsessed with checking it every single day. One nice thing about keeping your paper statements is that you can sit down with 12 months or even several years of statements and look back at how your money has performed.
Continue reading this email at MoneySmartLife.com after the break!
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