Why to 'Invest and forget'
Posted: January 12th, 2019, 8:42 pm
I found this interesting, based on an academic paper on behavioural finance. From the respected Morningstar investment website. Snippets...
' Learning to Live With Investment Risk
When stock markets get volatile, and asset prices fall, just learn to look the other way, says Morningstar's Ben Johnson ...
'Benartzi and Thaler claim that these two effects can help solve the equity risk premium puzzle. They found that investors who checked in on their portfolios once each year behaved as though they had a planning horizon of one year, even though their planning horizon – a measurement of how far away they were from their long-term goal – may have been decades away.
But the odds of losing money in risky assets with positive expected returns, like stocks, declines with time. Benartzi and Thaler argue that investors’ perception of risk increases as they check in on their portfolios more frequently, so they demand a large equity risk premium to compensate for the greater variability of returns....
“The longer the investor intends to hold the asset, the more attractive the risky asset will appear, as long as the investment is not evaluated frequently.”
I think that the less often we look at our portfolios, the less likely we’ll be upset and tempted to tinker. Tinkering rarely – if ever – helps us meet our long-term goals. It more likely results in costs, both directly measurable and implicit. The measurable costs include commissions and taxes. The largest implicit cost of tinkering is opportunity costs.'
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Those are just a few Excerpts [vs copyright], it's not a long article, anyone interested might consider reading it in it's whole.
http://www.morningstar.co.uk/uk/news/17 ... .aspx?ut=2
' Learning to Live With Investment Risk
When stock markets get volatile, and asset prices fall, just learn to look the other way, says Morningstar's Ben Johnson ...
'Benartzi and Thaler claim that these two effects can help solve the equity risk premium puzzle. They found that investors who checked in on their portfolios once each year behaved as though they had a planning horizon of one year, even though their planning horizon – a measurement of how far away they were from their long-term goal – may have been decades away.
But the odds of losing money in risky assets with positive expected returns, like stocks, declines with time. Benartzi and Thaler argue that investors’ perception of risk increases as they check in on their portfolios more frequently, so they demand a large equity risk premium to compensate for the greater variability of returns....
“The longer the investor intends to hold the asset, the more attractive the risky asset will appear, as long as the investment is not evaluated frequently.”
I think that the less often we look at our portfolios, the less likely we’ll be upset and tempted to tinker. Tinkering rarely – if ever – helps us meet our long-term goals. It more likely results in costs, both directly measurable and implicit. The measurable costs include commissions and taxes. The largest implicit cost of tinkering is opportunity costs.'
------------------------
Those are just a few Excerpts [vs copyright], it's not a long article, anyone interested might consider reading it in it's whole.
http://www.morningstar.co.uk/uk/news/17 ... .aspx?ut=2