According to recent reports, investors using a U.S. discount brokerage platform are checking their portfolios at an alarming rate of seven times per day.1 It’s not difficult to do. Today, often all it takes is one quick swipe on our smartphones. However, frequent portfolio checking may be hazardous to your investing health.

Modern behavioural scientists have shown that our cognitive biases can cause investors to make decisions that may not be in our best interests. By checking portfolios frequently, there is a greater chance that we will trigger these biases. One reason is that frequent checking means a higher probability of seeing a loss, which can drive emotional reactions. By checking S&P/TSX Composite Index performance on a daily basis, there is a 48 percent likelihood of seeing negative performance. If you were to check only once per year, this would decrease to 28 percent.2 However, even seeing positive performance may cause us to act in haste, such as selling a well-performing investment too early.

How about you: do you check your portfolio too frequently?

In his latest book, Nobel laureate Daniel Kahneman, father of behavioural finance, suggests that it’s not just our biases that can influence poor decision making, but also the “noise” around us. And, as the markets continue to climb the wall of worry, there has been no shortage of noise.

Does inflation affect performance?

Consider one of the more recent topics to consume financial circles: inflation. There has been significant unwanted variability in opinion — or noise — on the path forward. Some have warned that an inflationary era is upon us. Others support a more transitory view and suggest we may be too quick to ignore the deflationary forces. Consider the impact technology has had on lowering our cost of living. One example: the lithium-ion battery costs 97 percent less than three decades ago and is far more efficient.3

Market reactions have been mixed. Bond yields usually rise with rising inflation expectations, as inflation erodes the purchasing power of a bond’s future cash flows so a higher yield compensates for this risk. However, over the summer, despite rising inflation rates, bond yields remained low and actually fell. Even gold, considered a hedge against inflation, was down at the halfway point of the year.

Your advisory team can help you focus on the big picture

All this to suggest that predicting the course of near-term markets and economies has always been difficult. We’ve also never experienced a situation of this magnitude: the unprecedented actions to combat the pandemic have helped to distort market and economic cycles. In many ways, the path ahead will be understood only in hindsight. As your advisors, we are here to help cut through the noise to focus on what is important. Also important is being aware of the effects of paying too much attention to your portfolio or to the noise. Do you check your portfolio too frequently? If so, concentrate on looking forward and leave the day-to-day focus on your portfolio to those who are here to manage it.

  1. On average.
  2. S&P/TSX Composite Index 1985 to 2020