Checking Investment Performance

How Often Are You Checking Investment Performance?

Technology continues to change the speed at which we process information. According to Netflix, it takes just 1.8 seconds for subscribers to consider each program title they encounter.1 Studies show that online shoppers are more likely to make a purchase if they can retrieve product information more quickly. It was reported that for every 100 millisecond improvement in load time, Walmart experienced up to a one percent increase in online revenue.2

At the same time, we’ve conditioned ourselves to seek information more rapidly. In investing, we can quickly access our portfolios online to check performance. This often doesn’t take much longer than selecting a show on Netflix.

However, frequent checking of investment performance may not provide the right feedback. The problem? The information we receive about short-term performance isn’t usually indicative of what will happen over the longer term. Checking market performance more frequently increases the likelihood of seeing downward movements.

Diagram - investment returns

Two investors with the same investment performance could have different perspectives based on the frequency with which information is accessed. Checking the S&P/TSX Composite Index on a daily basis, instead of quarterly, would increase the odds of seeing a negative result by 10 percentage points (see chart). While some of us may have the mental fortitude to prevent negative performance from affecting our mood, the reality is that many of us do not. When focusing on short-term performance, it is also easy to overlook the realities of longer-term investing:

  1. Volatility is a normal part of equity markets. Since 1970, over 60 percent of annual S&P/TSX Composite Index total returns have been either greater than 20 percent or negative. Yet the market returned an average of around 6 percent annually over this period. Simply put, there is a high likelihood of large movements in market returns, but this volatility smooths out over time.
  2. Different investments, asset classes, or even investment accounts (based on asset location) may perform differently over time. A well-structured portfolio uses techniques such as asset allocation and diversification to help minimize risk by investing across areas that react differently to changes in the markets.
  3. Markets and economies are cyclical by nature. Long-term investors will experience both up and down markets; a solid wealth plan builds in this expectation over time.

While it is easy to access investment performance details, checking performance less frequently may better align with the overall investment process. After all, the objective is likely not to liquidate your investments today or tomorrow, but instead to maximize your returns over the longer run.