Don’t Be a Helicopter Investor
I couldn’t believe what I had done.
I had checked on how the markets had closed every day for an entire week. In addition, I had logged in to my investment accounts each day, pondering how I could “tweak” my portfolio to eke an ever so slightly higher rate of return.
I had become one of THOSE investors.
I had become… a helicopter investor.
What’s a Helicopter Investor?
Much like its parental counterpart, I envision a helicopter investor as someone who hovers over their investments. They are overly focused on their portfolio, the financial news, and the day-to-day fluctuations of the stock market. A helicopter investor might log into their accounts daily, or weekly for that matter. They might pull up market news on their smartphone multiple times throughout the day. Or they might make several “strategic” changes to their portfolio in order to “maximize” its performance.
Potential Problems with Being a Helicopter Investor
It is a good idea to monitor your investments regularly. After all, it’s important to rebalance your portfolio in order to maintain your target asset allocation. Problems tend to come up, however, once you start checking on things too frequently.
You could end up making decisions based on the short-term
Investing should be a long-term endeavor, something that you do over the course of several years. Paying too much attention to your investments or financial news, however, could lead you to make decisions based on the short-term volatility of the market. Instead of keeping an eye on the big picture, you end up focusing on what’s happening right now.
You may end up chasing returns
It’s easy to get caught up in the recent performance of a hot stock or market sector. As an example, international stocks have been on a tear throughout the entire year. The Vanguard Total International Stock Index, for instance, has seen a year-to-date return of 21.56%. I’m sure there are investors out there that have made changes to their portfolio based on these returns, even if it goes contrary to their original investment strategy and asset allocation. Those same investors may then turn around and sell if the future performance doesn’t correlate with the present. They have, in essence, bought high and sold low.
You might make “emotional” decisions
It’s tough watching your hard-earned money go down in value during a correction or bear market. While some would see this as a buying opportunity, others can’t stomach seeing their savings drop by ten, twenty, or thirty percent. Checking their investments frequently during these downturns would only serve to magnify their feelings of anxiety. And rather than remaining focused on the long-term and staying the course, they instead could make an emotional decision to sell, cut their losses, and get out of the market entirely.
What to Do if You’re Exhibiting Helicopter Tendencies
Nowadays, access to information is easy and convenient. Almost everyone has a smartphone, and there’s an app for pretty much everything. But if you’re tempted to check on your account balances or market news way too much because of this ease of access, then maybe you should just delete those apps entirely. If that’s too drastic, you could arrange your applications so that the financial ones aren’t on your home screen.
Create an investment policy statement
An investment policy statement (IPS) is a statement or document that outlines your general investment goals and objectives. It also establishes your specific investing strategy, risk tolerance, asset allocation, and investment philosophy. You can also include a section on how often you want to monitor your portfolio and when to rebalance. Write your IPS down. Keep it handy so you can refer to it when needed.
Stick with YOUR plan
Personal finance is personal, and everyone will have different goals and investment plans. The key, however, is to stick with yours. If that calls for making regular investments, then do that. Don’t worry about what the market does on a day-to-day basis. If your asset allocation dictates 30% international stocks, stick with it. Don’t be tempted to add more because of recent performance.
Yes, I once was a helicopter investor. But I have since changed my ways. I check on my accounts quarterly, rebalance only when needed, and have an investment plan that I know I can stick with for the long haul. I don’t have any stock market apps on my phone, nor do I pay much attention to all of the “financial noise” that’s out there.
When it comes to investing, I think the less you check on your investments the better. Don’t get me wrong, it is important to perform regular portfolio check-ups. I just don’t think it’s wise to obsess about things on a day-to-day, week-to-week, or even month-to-month basis.
So do yourself, and your investments, a favor. Stop babying them. Give them some space and room to grow. In the end, you’ll be thankful that you did.