Setting up and contributing to a retirement account is a critical first step towards becoming financially independent. But what do you do with your retirement account once you have it? How often should you check your balance? Like most retirement questions, the answer depends on how close you are to retirement. If you are planning on retiring in the next five years, it makes sense to check your retirement account monthly. If you are retiring in thirty years, you are better off only checking the balance quarterly, or even annually.
Emotion is the Enemy of Sound Investing
Most traditional retirement accounts are pegged to the value of the stock market. That means they will fluctuate. Over a long enough period of time, most accounts will grow significantly. However, if you are looking at your account every day, you will see the value goes up and down with alarming frequency. It can lead to panic. We are all emotional creatures. When it looks like we are losing money, it makes us anxious. But, emotion is the enemy of sound investing principles. If you meddle in your account every time there is a small dip in the market, you run the risk of losing all of your retirement savings. Investing based on your emotions about the direction of the market is like trying to pick the best lane on the freeway in a traffic jam. Constantly switching lanes will usually delay you more than staying put in one lane. Checking the balance of your account too often is detrimental to your overall financial and mental health.
Hope is Not an Investment Strategy
While you don’t want to compulsively check your retirement accounts, you cannot ignore them either. Hoping your accounts grow no matter what is happening in the market is not a strategy. You want to work with an experienced wealth manager to make sure you are on track for an enjoyable retirement. That may mean having more than just a 401(k) from your employer. A wealth manager will advise you on when the best time to diversify is. They take a lot of the emotion out of retirement planning. Monitoring your account every quarter prevents you from getting swept up in the short-term market fluctuations and allows you to see the long-term trends affecting your investments.
Understanding What the Numbers Mean
Your retirement account is about much more than just the balance. You need to understand what all the numbers mean. Was there a major selloff? Did your account manager move you into or out of a particular industry? Are there trends you should be worried about? Working with a wealth manager can help you make sense of all the numbers. Unless you are close to retirement, the actual change in your balance is less important than the overall direction of your finances and retirement accounts. One of the best things you can do with your retirement account is to schedule a time once a year to go over your numbers in detail with an expert. This will help you make rational decisions and will help you make course corrections if needed before you need your retirement accounts to support you.