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As technology becomes ever more part of our lives, we appreciate the benefits and conveniences, but without thinking too much about the issues or potential negatives of this new fast-paced world. While this can apply to many things, such as Facebook and social media in general and how they could be interpreted as anti-social (by traditional norms), I’ll be discussing about our investing behaviors and how technology, if not used wisely, can hinder, and not help us achieving our goals.

I will specifically discuss some recent research that has come to light, of course, due to new technology, and it discusses about the perils of using technology to your disadvantage. In a sense, it means that even if you have the capabilities (of doing something) it doesn’t mean that you should do something or take action, especially if research shows that it may not help you at all, and may even hinder your progress… Let me explain.

A new progressive investment company called Betterment has done research on their own clients and how often they check their accounts and monitor their portfolios. In short, from their research they claim: “Investing is a rare case of generally earning more by working and stressing less. Our advice? Take a vacation from monitoring your returns.”

More from their research below:

“ There are 10 million bits of information moving through this space every second.¹ And it poses a subtle threat to your retirement savings. It’s not high-frequency traders—it’s closer to home. It’s high-frequency monitoring, driven by your own brain.
The more frequently you check on your investments, the worse it will likely seem they are performing. So the more frequently you monitor, the less likely you are to be investing correctly for the long term. …

While it may seem like good stewardship to frequently log into your account to check on your performance, in reality this is likely to:

1) Stress you out
2) Encourage you to tinker with your investment allocations
3) Hurt your investment performance

Yes, all three. Research has shown that the more investors monitor their portfolio, the more risky they perceive investing to be—a phenomenon known as myopic loss aversion.


Over-vigilance also gives investors more opportunities to react to short-term returns by changing their asset allocation.
Betterment’s own research found that higher log-in rates is associated with an investor’s behavior gap —the difference between your investment returns and your personal take-home returns.

An investor who checks his or her portfolio quarterly instead of daily reduces the chance of seeing a moderate loss (of -2% or more) from 25% to 12%. And that means he or she is less likely to feel emotional stress and/or change their allocation.”


Evidence supports the idea that myopic loss aversion reduces investor returns. Directly from the research itself:
Investors who got the most frequent feedback (and thus the most information) took the least risk and earned the least money.³
In the chart below, you can see the distribution of “log-in rates” amongst our customers across mobile and web.

a) About 10% are superstars—they log in less than once per month. By doing so, they have reduced their chance of seeing a loss by about 6%.
b) The majority of customers (55%) log in less than once per week.
c) About 30% of customers log in between once per week and every other day. We are super flattered that they love our website so much… but there isn’t too much information to be gleaned about your performance over such short periods of time.
d) Finally, we have the cases who might want to dial back on their investment monitoring—customers who log in at least every other day. These customers are likely stressing themselves out needlessly, without any improvement in performance.
Individuals who log in often may counter that they are systematically improving their performance by being more active and diligent. Unfortunately, this is rarely the case. Log-in rate is usually associated with a higher behavior gap, i.e., lower investor returns compared to a passive approach.

Investing is a rare case of generally earning more by working and stressing less.Rather than work against that, take advantage of it, and take a vacation from monitoring your portfolio.”

¹http://www.eurekalert.org/pub_releases/2006-07/uop...
²http://www.kpcb.com/insights/2013-internet-trends
³Thaler, R., Tversky, A., Kahneman, D., & Schwartz, A. (1997). The effect of myopia and loss aversion on risk taking: An experimental test. The Quarterly Journal of Economics, 112(2), 647-661.”

As seen from Betterment’s research, which follows on already established research of myopia and loss aversion, high-frequency portfolio monitoring doesn't relate to better performance, instead it may give fake emotional risk behavior that may make you change your allocation or other long-term mistakes.

For us advisors that are in this business, wanting or not, we have to monitor clients’ portfolios and make sure that all is running smoothly, but for most investors, overlooking their own portfolios too often is a mistake that leads to other mistakes…and just like mentioned before ‘a capability that we simply don’t have to exercise’.

So, who are the biggest ‘violators’?

Usually male, younger, less tenure with the firm, lower net worth, higher account balance or using their mobile app (fast accessibility via technology)…

Sincerely,

Lead Advisor, InvestEd.

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