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On the last Wednesday in July, I received several phone calls from clients. On the last Friday in July, nobody called. Why the difference? On Wednesday, the S&P 500 dropped 1.52%, and the Nasdaq composite dropped 1.74%. On Friday, the S&P 500 gained 0.7%, and the Nasdaq gained 1%.
Plenty happened between those two days. The Federal Reserve held rates steady and gave no guidance about what comes next. Major international companies reported earnings; one gained 15% while another lost 7%. Oil prices moved based on the war with Iran. All these events earned headlines. None of them changed where the month ended.
For the last week of July, the S&P 500 and the Dow each finished up about 1%. For the month, the S&P 500 finished down 0.1%, and the Dow finished up 0.3%. A volatile month ended almost exactly where it started.
The Impact of Checking Frequency
How volatile your portfolio feels depends mostly on how often you look at it. Daily prices jump around. Weekly prices jump less. Monthly prices are smoother than weekly, and annual prices are smoother than monthly. Checking more frequently does not change your investment. It does change your level of anxiety.
To understand this, think of the value of your house. Most people believe home values rise steadily along with inflation, and they believe it partly because nobody appraises a house every morning. If strangers knocked on your door each day with firm cash offers, you would watch your home value fluctuate the way your 401(k) does.
Frequent checking produces fear. Losing money feels considerably worse than gaining the same amount feels good, so every look at a falling balance registers as a small emergency. The more emergencies you live through, the more likely you are to act on one. I have seen clients sell because of a sudden drop and then spend two years waiting for a re-entry point that never felt safe enough.
The Reality of Market Fluctuations
Since 1980, the S&P 500 has fallen an average of 14.2% at some point during each calendar year, according to J.P. Morgan’s Guide to the Markets. Annual returns were still positive in 35 of those 46 years.
Even the worst stretch on record is milder than most people assume. The weakest 10-year run for the S&P 500 in the modern era was 2000 through 2009. It included a 22.1% loss in 2002 and a 36.6% loss in 2008, yet the decade’s annualized loss was 0.95%. Investors who held through the two worst years came out roughly even after 10 years.
The S&P 500 spent July going nowhere. Whether that month was calm or nerve-racking depended on how often you checked your portfolio. Over the years I’ve received plenty of client calls about dramatic daily market drops. I have never had a client call about a flat month.
A Practical Approach to Monitoring
So my suggestion is to look less often, even if you have to start gradually. Move from daily to weekly. When weekly stops bothering you, move to monthly by reading statements when you get them instead of logging in at other times. To make it easier, turn off price alerts on your phone and take brokerage apps off your home screen. This reduces opportunities to react.
I wrote several years ago that the only thing you can count on the stock market to do is fluctuate, and that the wisest response is usually to do nothing. Nothing in the past few weeks has changed my mind. Looking less often will not change your return. It will make you far less likely to damage the return you already have.
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Rick Kahler, MS, CFP®, CFT™, CeFT®, is the founder of Kahler Financial Group, a Rapid City, SD-based fee-only Registered Investment Advisor.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
