How Often Should You Look at Your Portfolio?

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Driving home on Tuesday, I heard a newscaster mention how the major stock indexes were all down month to date. My initial reaction was, “So what? The markets are still very close to their highs.”

But there was a bigger reason for my reaction: The information just didn’t matter. Stocks, and the indexes they constitute, fluctuate. Some days they are up. Other days they aren’t. The day-to-day moves have no bearing on my long-term portfolio decisions. 

What’s conveyed by the media and the various outlets for investing content does raise a question: How often should you look at your portfolio? The frequency is less than the headlines, soundbites and tweets we’re all subject to would otherwise suggest.

At a high level, there are two parts to portfolio monitoring: the allocation followed and the investments held. Our PRISM Wealth-Building Process calls for basing your allocation on your goals and tolerance for risk. Monitoring the investments held should be in accordance with your buy and sell rules.

For a long-term goal (saving for retirement) or for a goal with a long spending duration (taking withdrawals once in retirement), significant allocations to equities are required. Maintaining a steady allocation to equities allows the portfolio to benefit from the power of compounding. In such situations, the daily or monthly moves in the markets don’t matter much. In fact, they can be a dangerous distraction—especially if they prompt you to abandon your allocation strategy and lose the long-term benefit of compounded returns.

Allocations do evolve over time. Left unchecked, the weighting of the best-performing asset class will move the portfolio off-kilter. So, this aspect of the portfolio does need to be checked. Once every six or 12 months is often enough. When doing so, allow some room for drift. Allocations are never stable, and too-frequent rebalancing will result in unnecessary transaction costs. Plus, you want to give your winners some room to run. Bands of five to 10 percentage points can also be used (e.g., a 5% band would mean not rebalancing the stock allocation back to, say, 60% until it accounts for more than 65% or less than 55% of the total portfolio).

The frequency of monitoring individual investments depends on what they are and your rules.

Mutual funds can be checked once a quarter, semiannually or even annually. The same applies to exchange-traded funds (ETFs) unless you are using a shorter-term trading strategy. For the most part, you want to ensure there isn’t a move of an unusual magnitude relative to the fund’s peers. Once a year, compare longer-term returns and the expense ratio to the mutual fund’s or ETF’s peers to make sure they are still reasonable. Check the prospectus annually as well to ensure the objective has not changed.

Individual bonds intended to be held to maturity can be checked semiannually when interest payments are due. In doing so, look to see if there is any reason to believe the issuer’s credit quality is deteriorating.

How often to check your stocks depends on your strategy. Fundamental data points—including growth rates, margins and leverage ratios—are updated quarterly. Valuation ratios tend to evolve over time and can be checked monthly unless there is a significant price move. News can be monitored weekly or less frequently. Even relative strength indicators, which measure momentum, can be tracked weekly.

For all types of investments, give thought to what information you are looking at. The more you can view the portfolio through the lens of your strategy as opposed to news and scuttlebutt about what is happening in the market, the better your decisions will be.

How often do you look at your portfolio? Tell us in the comments section below.