Investors often hear two golden rules of wealth creation: monitor
your portfolio regularly and stay invested for the
long term. At first glance, these instructions can seem contradictory.
If the idea is to remain invested for years, why keep checking the portfolio?
Conversely, if one is reviewing the portfolio frequently, does it not imply
constant changes? In reality, these two principles are complementary and, when
balanced well, form the foundation of disciplined investing.
Monitoring a portfolio regularly simply means keeping track of
how investments are evolving over time. It is not an invitation to react
impulsively to every market swing. Rather, periodic reviews, say quarterly or
semi-annually, help investors assess whether their investments are performing
as expected and whether they continue to align with their financial goals, risk
tolerance, and evolving personal situation. The purpose is awareness, not
hyperactivity.
For example, a diversified equity portfolio designed to fund
retirement twenty years later does not need daily scrutiny. But reviewing it a
few times a year ensures that asset allocation remains intact. If equities have
surged sharply, they may now dominate the portfolio disproportionately, calling
for rebalancing. Similarly, if a particular stock or fund has consistently
underperformed due to structural issues rather than temporary volatility, a
planned exit may be justified. Regular monitoring helps investors stay
informed, make timely decisions, and course-correct before small drifts become
big deviations.
On the other hand, “staying invested” is a behavioural
discipline. Long-term wealth creation depends significantly on compounding, and
compounding works only when investments are allowed to grow over time without
constant interruptions. Many investors hurt their returns not because they
selected the wrong investments, but because they exited too soon, either out of
fear during market downturns or excitement during short-term rallies. Staying
invested teaches patience, reduces emotional decision-making, and prevents the
classic investor trap of constantly chasing the next “best” opportunity.
However, staying invested does not mean blindly holding
on. Even a long-term investment deserves a periodic reality check. If the
fundamentals of a business deteriorate, the management changes negatively,
regulations alter prospects, or the original reason for investing no longer
holds good, staying invested indefinitely becomes counterproductive. The
philosophy is to remain invested as long as the premise remains valid,
not to remain invested at any cost.
True investing wisdom lies in combining both approaches.
Monitor the portfolio regularly to stay in control, but avoid reacting
unnecessarily to noise. Stay invested to enjoy the power of compounding, but
remain alert to genuine red flags. This balance keeps the portfolio healthy and
the investor focused on long-term goals without falling prey to either
negligence or restlessness.
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