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Legend has it that Fidelity tried to study which of their investors had the best returns. Was it better to log in frequently or to let your investments ride?
Investors were better off dead, or so the legend goes. The dead guys and gals couldn’t log in to their accounts and monkey with their investments. And that led to better results.
There is no such study, apparently (it was investors who forgot they had accounts with Fidelity), but the dead guy story persists to better drive home a point, and it’s a powerful one. In many cases, it’s better to lock the door and throw away the key than it is to open the door twice a day to make sure everything is okay.
However, as I’ve learned the hard way, ignorance is not always bliss. In this case, ignorance was costly to the tune of over $75,000. I’ve learned from this mistake, and I hope you will, too.
The Danger of Not Checking Your Portfolio (I’ve Made a Huge Mistake)
Family slow travel. That was the dream and we were now living it.
We had just spent two amazing months in Mexico. We had a few days at home, a trip to Minnesota and back, and I was catching up on mail while preparing for another two months away, this time in Spain.
It was a bit of a whirlwind, but we took care of the essentials and then enjoyed the many wondrous sites, sounds, and tastes offered by the cities of Valencia, Barcelona, and Madrid. As we departed for home the first week of March, a viral outbreak was taking hold in Italy and cases were beginning to spring up in the cities we had spent time in.
Fast forward a few weeks and the world is suffering the effects of a widespread pandemic, and the stock market is reflective of the expected drop in corporate earnings with about a 30% drop in equities as this post is written.
I like having a stock-heavy portfolio, but it’s times like these that I appreciate that 10% bond / cash allocation.
About that Bond Allocation
Before retiring early, within my employer’s 457(b), I had a 100% stock allocation, holding my bonds in the 401(k).
When I left the job, I switched to a 100% bond allocation in the 457(b) account, which represented roughly 5% of my total portfolio. I adjusted my bond allocation down in my 401(k) to maintain my desired allocation of 10% bonds across the portfolio.
The plan was to maintain a minimum of 5 years worth of spending ($400,000) in bonds, drawing down the 457(b) and rebalancing the 401(k) to maintain that level.
In the fall of 2019, I learned that withdrawals would not begin until the year after I officially separated from my employer. I thought I had already done so, but I did agree to maintain “as needed” per diem status to keep my privileges and a toe in the door in case a desperate need were to arise for my services. You know, in case of something unimaginable like a viral pandemic.
Since I wasn’t officially separated from my employer in the eyes of the 457(b) plan administrator, withdrawals were put on hold until April of 2021 and I didn’t pay much attention to that stagnant account.
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Automated “Rebalancing”
Most of my investments are with Vanguard, but the 401(k) is held with TransAmerica. Transamerica has this really nifty auto-rebalancing feature that I wish I knew nothing about.
When I changed to the 100% bond allocation in the account in the fall of 2019, I changed both my current allocation and future allocation to 100% Vanguard Total Bond Index Fund.
What I didn’t think to change was on a 3rd screen. I used to have the account split 50 / 50 between Vanguard’s Mid Cap and Small Cap Stock index funds. Once a quarter, TransAmerica would even them out for me.
I didn’t realize they would do a 180 on my portfolio and “rebalance” back to the two funds I had traded out of, though, and that’s exactly what happened on December 30, 2019.
It’s not like they didn’t tell me, though. They tried.
I had become immune to these emails. To see what transactions were made, you had to open the email, click on a link, login and find the right combination of clicks on the site to see the confirmation. It should have registered as meaningful, but in the busy days between trips, it was just another email to be filed away.
Ignorance is Bliss?
We enjoyed our time in Europe. My investments were on autopilot, and I did a great job of not checking the balances regularly, if at all. Other than an occasional glimpse at our total net worth on Empower, I didn’t give my portfolio much thought.
That changed when we returned.
The lovely stock market gives and takes, and what it was giving me in early March were tax loss harvesting opportunities.
I made a handful of swaps and in mid-March I figured it was time to take a closer look at my current portfolio and update my spreadsheet.
When it came time to update the balance of the one bond fund I thought I held in the 457(b), that balance was zero. Here’s what it looked like on 12/30/2019.
Where I expected to see my bond fund, I had only small cap and mid cap stock funds.
D’oh!
I had thought I was about 90% / 10% stocks / bonds (exclusive of real estate investments) across my entire portfolio. It turns out I was 95% / 5%.
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As a result, instead of still having $230,000 in the account (the bond fund had a return very close to 0% year-to-date), the balance was down to $154,000. That’s a $76,000 difference.
As the reality of that inadvertent trade made in late December sunk in, I had a visceral queasiness and realized there was nothing I could do about that lost money, other than wait as long as it takes for the market to rebound. It may take years. Most of the time, having more stocks in there would work out in my favor.
Not this time.
Nevermind that my entire portfolio’s losses had reached seven figures. I expected to see that when I logged in. But I also expected to see my 457(b) balance relatively unchanged.
Ignoring the portfolio for 10 weeks was a huge mistake. If I had realized at any point in the first seven weeks of the year that I didn’t have the bond allocation I thought I had set up, I could have corrected it.
By the time I realized my error, I was out the cost of one Tesla S (or a Tesla 3 each for my wife and me). Well, that’s not entirely true. Since it is a tax-deferred account, 1/4 to 1/3 of the money belongs to the government. I’ll take a silver lining wherever I can find it.
Other Dangers of Not Checking Your Portfolio
Missed Tax Loss Harvesting Opportunities
I mentioned that I have been busy taking advantage of tax loss harvesting opportunities. In the first two weeks of March, 2020, I harvested $148,000 in paper losses.
That’s enough to take a $3,000 deduction on my income taxes for the next 49 years. More likely, I’ll use a good chunk of it to offset gains from alternative investments I’ve made, like one from the sale of a microbrewery and another on some vacant lakefront property.
If you ignore your portfolio and pay no attention to the market briefs, you’re not going to know to check for losses. Please note that tax loss harvesting is not locking in a loss, since the idea is to buy a similar asset when you sell the loser and you remain invested.
What would be even better than tax loss harvesting would be never having a loss to harvest, but that’s never going to be the reality. You don’t get the rewards without the risk.
Undetected Fraud
Ignoring your portfolio could also mean that you miss a fraudulent transfer. Fortunately, I have no experience in this, but scammers are scheming across the globe, and they have been known to clear millions from an account in a matter of minutes.
The sooner you notice that something is missing, the more likely you will be able to recoup that money. You don’t have to watch over the portfolio like a hawk, but a weekly check-in is probably wise. If any balances are down significantly, you should have a good understanding as to why. Maybe you made a withdrawal or the overall market tanked in proportion to your losses.
Understanding What You Own and Where You Own It
If you’re relatively new to investing and still learning, it’s a good idea to check your balances at least somewhat regularly just to better understand what you own and where you own it.
As your financial literacy increases, you may realize that the portfolio you set up is not the portfolio you want. It may be that your portfolio is not as tax-efficient as it could be or that those auto-selected target date retirement funds are no longer what you want in your 401(k).
As you progress in your education, you can write out a written plan, an Investor Policy Statement, and make sure your portfolio is well-aligned with the plan.
It’s Best to Check Your Portfolio Once in a While
If you’re prone to needless tinkering or can’t trust yourself to do the right thing in a bear market (i.e. stay the course), you may not want to check on your portfolio too often. In fact, you’d probably benefit from a trustworthy fee-only financial advisor to talk you off the ledge when necessary and keep you from making rash decisions. You’d very likely avoid stupid mistakes like the one I made, and if not, you’d have someone besides yourself to blame.
On the other hand, if you are a do-it-yourself investor and you trust yourself with access, do yourself a favor and keep tabs on what’s happening in your accounts. Log in to Empower to see all account balances in one place or your check in with your favorite broker or aggregator every once in a while.
I sure wish I had.
Fall 2020 Update
This post was originally published in March of 2020, when the newly-declared pandemic had caused asset prices to plunge. As illustrated, my 457(b) had lost $76,000 in value because of an inadvertent “auto-rebalance.”
I am happy to report that what I thought might take years to recover only took months. I stuck with the stocks that I had swapped into and by October, 2020, the balance had gained $81,000 to reach a new high of $235,000.
I took this opportunity to change the allocation back to bonds with the plan to begin withdrawing these funds in April of 2021, as I have now done. A couple of strongly positive trading days passed before my allocation was switched back to bonds, and this is the final result of a topsy-turvy 2020. All’s well that ends well, I suppose?
How often do you check on your portfolio? What’s been your biggest money blunder?
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19 thoughts on “The Danger of Not Checking Your Portfolio (I’ve Made a Huge Mistake)”
Yes, I have been a longtime advocate of periodically reviewing portfolios; in fact, I even wrote a book about systematic ways to review portfolios once a month. Only takes a couple of minutes and not as onerous as it sounds. Key thing is, make it a habit, otherwise we fall off the wagon.
Mid-February 2020 (just before market drop), I began the process of moving my HSA (100% stock index fund) from BenefitWallet to Fidelity. First step is to move investment balance to the checking account side at BW, then transfer entire balance to Fidelity, so I did that. I did not realize, however, that I had left BW’s “automatic sweep” feature turned on, where it automatically sweeps any excess checking account funds into the investment account. By the time I realized the money had been moved back into the investment account, it had lost 20% of the balance due to the market drop.
Oh, that is painful!
I hope it wasn’t as large a balance as my 457(b). My HSA remains in all bonds, thankfully.
Best,
-PoF
PoF,
Sorry about the gaffe and hope that you recover from it soon. Knowing you as I do, I expect that you will be fine, in the short run and in the long run.
One point that you breeze by in the blog is that you and your wife will have 49 years of $3000 tax deductions going forward. Do you have a more formal plan for “tax gain harvesting”? I still have not worked through my short term tax losses from the 2008/9 Great Financial Crisis, and now I have another substantial slug of tax losses harvested, with a large proportion being of the short term variety.
I plan to let these ride through the end of the year, but once I have a handle on the magnitude, I might just harvest some short term gains within my taxable accounts going forward.
You’re right, Vagabond. The long-term effects will be minimal. I was planning to do some rebalancing by moving some bonds into stocks mid-March, which (in hindsight) would have been a good move. But with so few bonds, I didn’t dare.
Life goes on and I’m happy to share my mistakes to help others avoid them.
As far as TGH, I see no reason to use up carryover losses unnecessarily. There will be alternative investments (like the brewery and lakefront property) that will eat up tens of thousands of dollars in carryover losses.
I do see a role for TGH when you have no carryover losses and are under the 0% capital gains bracket ($80k for MFJ in 2020). That’s probably a spot you’ll never find yourself in, and I may not, either.
Cheers!
-PoF
Wow that sucks. And really a crappy automated setup they have where they rebalance back into funds you sold.
On my company 401k I have the option to rebalance all (current and future) or rebalance future only.
Another thing I have heard of, and not sure if it is true, is that if you do not sign in your account for a long period of time (not sure when, but assume multiple years), the state or some other entity can treat it as unclaimed property or something like that. Hope it isn’t true, but never know.
A follow up to the above comment, it looks like some states can treat retirement accounts as unclaimed property and liquidate it if it is inactive for as little as 3 years:
https://www.forbes.com/sites/jamiehopkins/2018/07/16/a-new-retirement-risk-unclaimed-property-laws/#45c5fa4352b8
I received a letter last year telling me my Roth IRA I opened in 1999 was about to be forfeited for this reason. I was angry because I specifically remember, when I made the investment in 1999 (after selling my Volkswagen Beetle), that I wanted a place to park the money and not look at it for 50 years. They assured me that was the place (Merril Lynch).
Ironically, because of my timing and the fact it was a tech heavy Janus mutual fund with fees, I would have sen better return by keeping the Beetle.
That’s disturbing (the unclaimed property piece).
And I agree on the “rebalancing” bit. It’s not rebalancing within the account if you’re selling all and buying something completely different. There’s got to be a better setup than that.
But, I did ignore the notification. That’s on me.
Best,
-PoF
Check your bank checking acct daily as I was hacked
I’m POA on my dad’s account and set up a daily morning text of his account balances.
A feature of my bank that I really like is the ability to get notified for any transaction within dollar thresholds I’ve set. My hope is that if I get hacked I’ll get notified promptly so I can quickly act.
//How often do you check on your portfolio? What’s been your biggest money blunder?// Fidelity has a nice option to send me my account summary every business morning. It appears by email on my i phone. Vanguard does not have that option. Worst mistake was losing 36K Enron stock in my 401K. No tax loss harvesting in a 401K. Really pissed me off and resulted in my never buying a single stock again. All in mutual funds now.
Enron. Ouch!
Ouch.
I was going to say I’m glad you got back from Spain before the viral pandemic took off there, but I guess it took off here just as you got back… regardless of where you are, I hope you’re all healthy, and stay safe!
Thanks for sharing your blunders so we all can learn. I’m still amassing financial knowledge and mistakes. I check my bank and credit accounts every morning with my coffee to screen for fraud and reconcile my budget app. My taxable account most mornings as I learn more about the markets. My retirement accounts and HSA quickly once a week.
Once a quarter I fill out a personal financial statement with more detail into my net worth. I realize my budgeting software does this as well automatically. Taking the 10-15 minutes to do so long-hand gives me time to focus on my accounts and my goals, re-adjust for the upcoming quarter as needed, and look over the progress of the last few years that I’ve been tracking it.
When I first started investing for retirement through my employer then IRA, I was very intimidated by websites and investing and didn’t review or verify. At one point, I thought I had set up new investments to go directly into a total stock fund but they were still going into a higher fee fund with rebalancing, more conservative, asset allocations. It was a mistake not as costly but important lesson – I need to get help when I’m setting up or making changes to accounts. Now, I doublecheck soon after making changes and I work with a rep from the institution if change is significant.
Good for you for staying on top of that.
It is frustrating when you have to work with different brokers and sites, all of which can work very differently. I’ll admit that this was my mistake, and it was preventable, but also very surprising when I discovered it, since I had changed all current and future investments in the account to 100% bonds.
Best,
-PoF
You are thorough and wise, Sarah.
Sometimes watching the markets too closely can lead to emotional behavior and poor choices, but if you are disciplined, it’s best to pay more attention than less.
I feel like I’ve dodged a few bullets, and we still have no confirmed COVID cases in the county where I now live (and two adjacent counties). I’m sure the virus here and it’s a matter of days before we have proof, but it’s comforting to know it’s not running rampant and there are rooms at the local hospitals for those that need them.
Cheers!
-PoF