If you’ve ever seen the movie Moneyball starring Brad Pitt and Jonah Hill, you may remember Pitt’s character Billy Beane say, “I hate losing! I hate losing more than I even wanna win!” Of course, he was talking about baseball, but there’s a more valuable loss that hurts investors: losing money.
Do you hate losing money more than you love making money? If so, you’re not the only one. Many investors struggle with loss aversion, the desire to avoid losing money even if it means not taking any action to possibly gain money, such as investing. This is a natural fear; no one really loves losing money. It’s why many investors feel the loss of $100 more deeply than the thrill of earning $100. (Click here to see why stock market losses feel more extreme than gains)
One of the biggest mistakes many investors make is to check their portfolio too frequently. We know how tempting it is to log in to your client portal every week or even every month just to see how your portfolio is doing. The charts and graphs make your investments come to life before your eyes. It’s also easy to let losses hijack your thinking and tempt you to make a knee-jerk reaction.
Seeing a loss in bright red ink can be enough to make any investor want to call their advisor right away. This is why we recommend investors check their portfolio no more than once a quarter. Investors who check their portfolio performance less frequently tend to retain their investment value more often.(Oxford Academic)
This occurs for one reason: investors who see a loss in one month often don’t see long-term gains reflected in their annual returns. For example, the S&P 500 intra-year declines vs. calendar year returns shows the average intra-year drops are 14.2% while the annual returns ended positive for 28 of the past 37 years. While a significant loss may have been realized in 2000-2002 and even more so in 2008, long-term investing paid off from January 1980 through the end of December 2016. The annualized S&P 500 return (dividends reinvested) was 11.406% during that period of time. (DQYDJ)
Financial investing is a game of patience. Make good financial investments from the beginning by relying on a good financial advisor and empirical market data. Let those investments grow their value over at least five years before evaluating their long-term rate of return. Most importantly, try not to check your portfolio more frequently than once a quarter, ideally on an annual basis. It’s more likely you will make more on your return by letting your investments work without interference.
If you do have concerns about your investments, you may need to talk with one of our financial advisors at American Portfolios Denver. We can help answers your questions, give you good information relevant to your financial goals, and advise you on what may be best for your financial future. Start a conversation with our team today.