Tracking Investment Performance

So you've set up an Automatic Investment Plan. Weekly or monthly, your overall share ownership is ticking upwards by a regular, predetermined amount. But of course the value of your investments depends on the market. Now that you're a real investor, with a personal stake in the market, you should carefully watch where the market is going. Right? Really listen to all that stuff about what happened to the NASDAQ yesterday after lunch. Right?

Mainly wrong.

This much is true. You should maintain a broad sense of where your individual investments are headed, and where the overall market is headed. There are at least three reasons for this.

First: at least once a year it's a good habit to look at your Asset Allocation, and consider whether your investments need rebalancing. (If you're unclear what this means, or why it's important, or how to do it, read Setting Goals and Staying on Course.) You can't keep your investments on course without knowing what you owned last year and how its value has changed since.

Second: the health of your long-term investments affects your vulnerability. Good financial planning means you have an emergency fund that isn't volatile. If you fall off a ladder and spend six weeks flat on your back in the hospital — and this happens right in the middle of a nasty market "correction," you don't want to get stuck liquidating your retirement fund at fire-sale prices just to cover groceries and a few uncovered medical bills. Would some bad luck force you to dip into "long term" funds right now? If so, would that mean selling at the crest of a boom or the bottom of a slump? It's worth knowing where you are.

The third reason for keeping tabs on your investments is that you always have to keep one other unpleasant possibility in mind. The possibility we're talking about is that one investment or another may turn out to have been (sensible enough at the time, but) a long-term mistake.

Remember, the ShareBuilder philosophy is "Make smart choices — then stick with those choices." The caveat is this: occasionally, because of changes in politics, technology, or any number of other factors, what looked like a great long-term bet yesterday will have ceased to look like a great long-term bet ten years from now. Suppose that next year someone discovers how to make soda cans out of recycled newspaper. That's a situation in which we might want to get out of aluminum — however much the share price had already fallen.

Now we come to the "buts" — the very excellent reasons for not tracking your investments, and the state of the market(s), too feverishly. The thing is, successful ShareBuilding means taking "the long-term" seriously. (Read Virtues of a Long-term Outlook.) ShareBuilding works best when you cultivate a serene indifference to the daily babble of financial news and information that floods into the ears of anyone willing to listen. If your long-term picks are sensible long-term picks, a big percentage of all the next 20 years of hot financial news is irrelevant to you once the picks are made. And more significant than its possible irrelevance is the fact that nothing undermines your long-term outlook more powerfully than some guru telling you that thus-and-such stock is better than what you have. Measured deafness can be an art worth learning.

To the extent that you do follow the market, "benchmarks" are useful creatures to know and understand. The Dow Jones tracks how the largest 30 industrial companies in the United States are doing. The Russell 2000 takes the temperature of a broad range of Small Cap U.S. stocks. Among dozens of others, there are index shares such as the Morgan Stanley Capital International — Europe, Australia, and the Far East index — a broad index of stocks in developed countries outside the U.S. If your account tends towards one type of stock, it's useful to "benchmark" it against a relevant index. Of course, if you are already invested in index shares, it's even easier — the performance of your account is essentially the index!

By the way, a basic part of being a sensible ShareBuilder and keeping track is doing sensible record keeping. Keep and file any "1099" forms you receive: they are a record sent to you (and the IRS) from any entity that pays you interest (1099-INT) or a dividend (1099-DIV). Also keep track of your monthly ShareBuilder statements, which are much like a bank statement, and your "confirms" (confirmation slips), which show what you bought or sold and the associated details. April is bad enough already, being able to find these documents makes it a lot easier.

The bottom line on keeping track is this. If you don't have a clue whether your Global Widget stock is worth more or less than it was worth a year ago, you probably aren't paying enough attention (don't just print and file those statements, look at them!) If, on the other hand, if you find yourself itching to buy pharmaceuticals (or sell pork bellies) because you just read that Chinese diplomatic maneuvering may spook the Hang Seng index, we recommend decaffeinated tea and a romance novel.