Bad Things Happen When You “Peek-A-Boo” Retirement Balances

Do you too frequently check your retirement account balance(s)…your 401(k)…your IRA?

According to Vanguard Group, which manages 5 million or so 401(k) plans, 62% of account holders checked their balances during 2022, the year the S&P 500 declined a nerve-wracking 18%. No surprise there.

Folks get extra goosy during economic downturns, but they behave similarly in good times, as well. For example, in 2019, 2020 and 2021 - when the index soared 32%, 18%, and 29%, respectively - up to 69% of those affected by the market also monitored their increasingly robust totals. (It’s very gratifying to watch retirement balances increase.)

My point being, in Bull as well as Bear markets, we “too often” check our retirement accounts – which isn’t necessarily a good habit to develop.

Brokerage data suggests that people check their balances more frequently in good times than in bad, which in either instance can encourage responsive rollercoaster influences. In bad times, they may make rash decisions to bail out, while in good times they could get caught up in the rush to join the fun…both potential recipes for making less than optimal decisions.

According to behavioral studies, young investors with carefully established long-term investment goals…and who pay the least attention to an ever-changing stock market…earn significantly higher yields over time than those who constantly monitor and dabble in the marketplace.

In short, studies reveal that it makes more sense to focus on long-term goals than to trade in a fluctuating…Bull or Bear…market.

During the good times (Bull), there’s a tendency for folks to feel more affluent, which raises the temptation to both overspend and undersave. And during the bad times (Bear), it’s difficult to NOT JOIN the thundering herd and bail out of those good investments that you’ve spent months and years accumulating.

So, don’t let those frequent peeks at your retirement balances tempt you to make unnecessary moves that just might sabotage your long-term financial security, such as loading up on overvalued stocks while chasing higher returns during the good times, or bailing out in the bad times thinking the “end is near.”

Remember, joining the herd can result in several negatives. Selling prematurely often unnecessarily creates taxable capital gains…or real losses. And if you choose to re-enter the market later on, when do you buy back in (if ever)? It’s not uncommon for folks who bail to miss 20%, 30%, 40% of the front-end of the next Bull market.

Remember those PDQ principles: Make quality, well-diversified investments¹, and have the patience to stick with them during those occasional downturns that will inevitably occur during your journey toward a comfortable retirement!

Since I’m not a credentialed financial advisor, the answers (observations) I give are strictly my opinion.

¹Defined contribution (DC) retirement plans are the centerpiece of the private-sector retirement system in the United States. More than 100 million Americans are covered by DC retirement plan accounts, totaling $9 trillion in assets (Sources: U.S. Department of Labor, Private Pension Plan Bulletin Historical Tables and Graphs 1975–2020, October 2022; and Investment Company Institute, Quarterly Retirement Market Data, Third Quarter 2022, December 2022).