Opinion: The less you check your brokerage account, the more money you’ll make
When you check your brokerage statement, how do you feel?
If it’s since the last time you watched, it probably feels good. If it’s down, it makes you feel bad.
People don’t like to feel bad. So if the market has been going down for a while and they think they are losing money, they stop checking it. If the market has been up for a while, they will check it daily. In fact, most people will check it several times a day.
For all spreadsheet jockeys out there, you know that if you press the “F9” key, it recalculates the spreadsheet. When I was a trader, I noticed that I pressed F9 a lot more on good days than on bad days. On terrible days, I would absolutely dread pressing the F9 key. On big days, I pressed it three times per second.
Over time I started seeing this as the F9 problem.
“It’s no surprise that people don’t dwell on the day-to-day performance of their retirement accounts.”
For one thing, pressing it every second gives you more information, but isn’t necessarily a good thing. More information can lead to worse decisions. This is an argument to check it less often. But on the other hand, sometimes you need to know the extent of the damage in order to act. You can’t put your head in the sand because most problems don’t get better if you ignore them.
If you do that, you’re no better than the investor who leaves their monthly statements on the counter unopened.
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What is the answer? Michael Batnick, director of research at Ritholtz Wealth Management, posted an important discovery on Twitter a few weeks ago. He noted that if a hypothetical investor checked their P&L daily, there would be a 46% chance that they would post a loss. But if he checked his P&L once a year, there would only be a 26% chance that he would post a loss. (Because markets go up over time.)
The goal here is to stay invested and keep accumulating. And if you see losses consistently, you’re more likely to get frustrated and liquidate your investment – and stop compounding. Which would be catastrophic.
There is a perfect place. If you check it too infrequently, you may miss an opportunity to change your asset allocation. Most investors shouldn’t try to time the market, but I think there’s one, maybe two times in your investing career that could argue for a big change in your investing mix. .
My answer? Something in the middle, which is about what I do. Don’t turn off paper statements! Have them delivered to your home, and when they arrive, open them. But don’t log into the website.
Once a month, you need to balance the competing concerns of having too much negative feedback against willful ignorance. Before the Internet, people were fine with monthly statements.
There are bigger implications of the F9 problem.
Benefits of a blocking period
Everyone loves private equity (and venture capital) these days. I’ll tell you why everyone loves private equity: because it locks your money in for 10 years!
Imagine being able to log on to a website and watch your private equity fund turn second by second, like a stock. Imagine this giving you quarterly cash. You’d be out of it in a second. But you literally can’t get your money back for 10 years, so don’t worry. There aren’t too many 10-year periods in history when the stock market shows a loss, so you’ll probably be happy in the end.
That’s it! That’s the only advantage.
You cannot F9 your private equity investment. Unlike a hedge fund, which offers quarterly liquidity.
Personally, I don’t think a three-, five-, or 10-year lock-in on a hedge fund is unreasonable. A hedge fund manager is free to take different risks if he doesn’t have to constantly worry about having his assets ripped off.
The point to remember here is that you should not be afraid of illiquid investments. Worry about valuations, not illiquidity – especially if you’re pretty sure you won’t need the money.
As a financial market specialist, I’ve always been wary of situations where it’s hard to get my money out, but I’m getting used to the idea. (I used to brag that I could get out of my entire wallet in five minutes.)
It’s hard to F9 your rental house, or your gas station, or your laundromat. If you keep it for 10 years, chances are you will make money from it.
Of course, the ultimate illiquid investment is your retirement account, for which you must pay an early withdrawal penalty.
It’s no surprise that people don’t dwell on the day-to-day performance of their retirement accounts. And for heaven’s sake, don’t put yourself in a position where you might have to walk away and pay the penalty.
Don’t check your account every day. Check it every month. But be sure to check it out, no matter what surprises may await you.
Jared Dillian is a former head of ETF trading at Lehman Brothers. Get his free report: Five Key ETF Trading Strategies Every Investor Should Know.