How Closely Should You Watch The Stock Market?
By Jeremy Reif, CRPS®, Financial Advisor and Owner of Point Wealth Management
The stock market can be a beast sometimes, and make you want to either put your head in the sand or obsessively watch every move. It’s understandable. You work hard for your money and want to see it grow. It’s easy to second guess your investment decisions or panic when the market goes haywire. But is either extreme the right way to react? How closely should you watch the markets?
Tracking The Wrong Information
Unless you’re a day trader, you may not want to overwhelm yourself with handling your accounts via DIY. Some days can seem impossible with the sheer amount of information coming at us from the 24/7 availability of the Internet and the constant stream of news reports. But we would do well to turn a blind eye to the barrage of details coming at us. Here’s why: whether you are a set-it-and-forget-it investor or someone who gets every market alert sent to their phone, many people are tracking the wrong thing.
One thing to consider, where is the information coming from? Is the information noise or is it from a reputable source? Artificial intelligence or AI writes catchy headlines that tear at your emotions. This becomes important to understand because emotions trigger reactions and can vastly change the market volume.
Think about it this way. One of the most commonly watched market news is the Dow Jones, S&P 500 or Nasdaq. It could be up, down or sideways. Depending on the market noise, if the major indices are reported on, one would expect to see the same results on your 401(k) account. You check in on your accounts and notice that your balance hasn’t changed. What’s that all about?
How It All Works
To give a simple explanation, the Dow Jones is a compilation of 30 companies (stocks) trading on the New York Stock Exchange and the NASDAQ and the S&P 500 is an index of the 500 largest U.S. publicly traded companies. Since the Dow Jones and S&P indices are comprised of companies that are considerable in size, they are usually classified under large growth, value, or blend in our portfolios. One of the most common pieces of financial advice is to diversify our investments and not put all our eggs into one basket. An example of a well-diversified portfolio is to have large-cap, mid-cap, small-cap, international, and fixed-income assets.
Apples And Oranges
If your portfolio is properly diversified, then comparing it to the major indices that the media reports on is like comparing apples to oranges. You are looking at two completely different things and the information you glean is irrelevant to your situation. Instead, investors should compare their portfolios to an index that includes what they are currently invested in. But since everyone has their own unique time horizon, risk tolerance, and investment goals and strategies, there is no one-size-fits-all index to use as a benchmark.
Where To Go From Here
If you want to track your portfolio, you’ll need to find an index that is customized to your own investments. Does that sound too complicated and time-consuming? That’s why it’s my job to manage your financial plan, monitor your investments, and make sure you are on track to reach your objectives. If you want to check in on your investments to make sure they are allocated appropriately, find out what you are invested in, or manage your in-service distribution options, I’m here to point you in the right direction