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November 9, 2015

How Often Should You Check Your 401K Balance?

I recently looked at my 403(b) plan, which is the equivalent of a 401(k) plan, for the first time in approximately six months. Even with the market’s recent correction, my portfolio was fine. Now that I’ve looked, I don’t plan on checking it again for another six months.
Sounds heretical, doesn’t it? A financial professional not looking at his account?! I’d argue there is bliss in controlled ignorance. Not knowing what the balance is, and quickly forgetting it once reminded, helps to avoid anchoring. I’m neither shocked nor surprised when I do look at my account balance because I don’t remember exactly what it was the last time I looked.
Keep in mind that I am aware of what is going on with my account. Vanguard emails transaction statements when my payroll deductions are deposited so I know when activity has occurred. I just don’t know what the account balance is. (The same applies to my other brokerage accounts.) And that’s good because I should focus on the process and not the short-term results.
Think about it. What control do you or I have over how the asset classes we invest in perform? Here’s the answer: none. We can choose what we invest in. We can choose how much we allocate to each asset class. We can decide when we get in and when we get out. We can even choose the vehicle (a stock, a mutual fund, an ETF, etc.). We cannot choose the return we’ll get. That’s completely beyond our control.
So, why focus on the account balance? Looking the number frequently won’t make you a better investor.
What will make you a better investor is the process you follow. How much are you setting aside for retirement and other future expenses? Are you contributing to your savings frequently? If you are retired, are you limiting portfolio withdrawals to a sustainable level? Do you have a disciplined, well-thought-out plan you can stick to regardless of what the market is doing? Have you set up the proper barriers to limit the effect emotions will have on your portfolio? Is your portfolio properly allocated given your financial goals, investment time horizon, financial tolerance for risk and your emotional tolerance for risk? Do you have clear buy and sell rules for the securities and/or funds you invest in?
These are the type of things you should focus on. They are within your control. What the financial markets do to your account balance isn’t.
When I actually do look at my accounts, it’s with a purpose. I check my 403(b) account to see if I need to rebalance. I use an equal-weighting methodology with a target allocation of 20% for each of the five funds I hold in my portfolio. I specifically check at the end of April and the end of October (the separation points between the best and worst six-month periods for stocks) to see if any of the funds’ weighting is more than five percentage points above or below target. If so, I rebalance. If not, I do nothing and then don’t look at the account again for another six months, with the exception of monitoring the transaction email notifications.
As far as my recent check goes, it turns out that I didn’t need to do anything. An error in calculating the fund weightings caused me to rebalance. I calculated one fund as being five percentage points off target, when it was really just one percentage point off. It was a silly (but fortunately minor) mathematical error on my part, and an example of how even those of us who regularly write about finance aren’t perfect. In response, I’ve set up a spreadsheet specifically designed for the account that will automate the calculations to prevent the error from recurring in the future. In investing, as is the case with many other activities, process is important.
The Week Ahead
The U.S. financial markets will be open on Wednesday, but the banks will be closed in observance of Veterans Day. On behalf of everyone at AAII, thank you to those of you who served or are currently serving in the military.
Nearly 20 S&P 500 member companies will report earnings next week, including Dow Jones industrial average component Cisco Systems (CSCO) on Thursday. Retailers will begin to take the stage with Macy's (M) reporting on Wednesday and Kohl's (KSS) and Nordstrom (JWN) reporting on Thursday.
The first economic report of note will be October import and export prices, released on Tuesday. Thursday will feature the September Job Openings and Labor Turnover Survey (JOLTS). The October Producer Price Index (PPI), October retail sales, September business inventories and the University of Michigan's preliminary November consumer sentiment survey will be released on Friday.
Several Federal Reserve officials will make public appearances: Boston president Eric Rosengren on Monday; St. Louis president James Bullard, Richmond president Jeffrey Lacker, Chicago president Charles Evans and New York president William Dudley on Thursday; and Cleveland president Loretta Mester on Friday.
The Treasury Department will auction $24 billion of three-year notes on Monday, $24 billion of 10-year notes on Tuesday and $16 billion of 30-year bonds on Thursday.
About The Author - Charles Rotblut, CFA is the VP and Editor for American Association of Individual Investors (AAII). Charles is also the author of Better Good than Lucky. (EconMatters author archive here)  


The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters. © EconMatters All Rights Reserved | Facebook | Twitter | Free Email | Kindle

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