You will be able to explain why checking frequency changes how risky investing feels.
Hui Min has her broker's app on her home screen. She checks it on the MRT in the morning, at lunch, and usually once more in bed. On a red day she feels a small knot in her stomach, and on a bad week she starts reading market news at midnight. Her portfolio is meant for twenty years from now. She is watching it as if it were due next Tuesday.
Shlomo Benartzi and Richard Thaler put a name to what happens here in a 1995 paper: myopic loss aversion. It combines two things. One is loss aversion, from lesson 2.2, the tendency to feel losses more than equal gains. The other is how often you evaluate your investments. The more often you look, the more often you'll see a loss, and if each loss hurts more than each gain pleases, frequent checking makes the same investment feel much worse.
Benartzi and Thaler used the idea to help explain a long-standing puzzle in finance: why investors have historically demanded such a large extra return for holding shares instead of safer assets. Their argument was that people who evaluate their portfolios often feel the frequent dips so strongly that they need a big reward to hold shares at all.
Here is a made-up year for a S$40,000 portfolio, month by month, in percent: up 3, down 2, up 4, down 1, up 2, down 3, up 5, down 2, up 1, up 3, down 1, up 2.
By December the portfolio is worth about S$44,460, a gain of about 11% for the year. A good year by most standards. Now count what Hui Min would see depending on how often she looks.
Checking once a year, she sees one result, and it's a gain. Checking once a quarter, she sees four results, and one of them is a fall: the second quarter ends lower than the first. Checking monthly, she sees twelve results, and five of them are falls. Checking daily, which is closer to what she actually does, she would see red on a large share of days, because daily prices bounce around much more than the yearly trend.
It's the same portfolio with the same result. Yet the person who checks once a year experiences a calm, rising investment, while the person who checks every day experiences a long series of small losses, each one felt more than the gains in between.
This would be harmless if it only affected mood. It doesn't. Experiments in the years after Benartzi and Thaler's paper gave people a choice between a risky investment like shares and a safer one, and varied how often they received feedback on results. People who saw their results more often tended to put less into the risky option than people who saw results less often, even though the investments were identical.
In real life, that shows up as people holding less in shares than their goals need, because the shares feel so much riskier than they are over a long horizon. Or it shows up as selling in a fall: the daily red builds up until it becomes unbearable, often near a low point. Either way, checking too often can quietly lower your long-term returns.
You don't need to stop looking at your investments. You need to look at them on a schedule that matches what they're for.
For long-term money, many people find that a monthly glance and a proper review once or twice a year is enough. Build and run an ETF portfolio, lesson 8.3, The yearly review: what to check and what to leave alone, describes what that review should cover. Between reviews, the only regular action is the automatic monthly investment, which doesn't need you to look at the price at all.
A few practical changes make the schedule easier to keep. Move the broker app off your home screen, or into a folder you have to search for. Turn off price alerts and daily summary notifications. Unfollow the market news accounts that post every swing. If you must check something daily, check your budget, which you can actually do something about.
Hui Min moved the app into a folder on the last page of her phone and turned off all its notifications except trade confirmations. She now checks on the first Saturday of each month, writes the balance in her log, and closes the app. For the first two weeks she opened the folder out of habit several times a day. By the end of the month, she'd stopped.
Think about how often you look at your investments now, and what schedule would suit money you don't need for years.
Write how often you check your investments now and the schedule you will move to.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).