Survey: M1 investors most likely to review investments quarterly or annually

During the last weeks of 2018, we polled our customers to get a sense of their investment plans for 2019. Here, we present those findings, along with some insight from investment professionals about how well our users are doing – and what steps they (and you) can take to make 2019 your best year for investing yet.

Finding 1: More than half of M1 investors are setting 2019 goals

The first question we asked was whether M1 users planned to set investing goals for 2019. More than half of them (59 percent) said yes.

While it’s good that most investors have a plan, it’s not so great hat more than four in 10 don’t.

“Investing without a plan is like taking a trip and not having a roadmap or GPS,” said Robert R. Johnson, PhD, CFA, CAIA, and Professor of Finance at Creighton University’s Heider College of Business.

He recommended writing out that plan: “Long-term investors should establish an Investment Policy Statement and follow it. An IPS is a written document that clearly sets out a client’s return objectives and risk tolerance over that client’s relevant time horizon, along with applicable constraints such as liquidity needs and tax circumstances.”

Other experts we spoke with agreed – and some were just as fond of metaphors.

“You can’t move forward if you don’t know where you’re going,” said Dan Passarelli, author of Trading Option Greeks and The Market Taker’s Edge and CEO of Market Taker Mentoring, Inc. “Once you set goals you can develop your strategy, and then the rest is easy. Then it’s simply following the plan.”

So if you don’t already have a goal for 2019, consider making one. Even if you already have long-term goals (like retirement) in place, you may want to define some short-term goals, such as…

• Saving for a vacation
• Building an emergency fund
• Saving for your next car or appliance purchase
• Building a home-repair fund
• Saving for a down payment on a house

If none of these match your life right now, consider setting shorter-term milestones or even check-in dates to review your long-term investments. Having a reason to review your portfolio forces you to learn more about the market and therefore be a more engaged investor – which will benefit you in the long term.

Finding 2: Most M1 investors reassess strategy quarterly or yearly

The second (of two) questions in our survey was about strategy: how frequently do you reassess your investing strategy?

Our users are most likely to tackle strategy reassessment quarterly (28 percent) or yearly (28 percent). But nearly a quarter (22 percent) noted they reconsider their strategy monthly, and 15 percent said they take a look every week.

This means M1 investors tend to be more engaged than the general investing public. A recent survey by the American Institute of CPAs found that fully 28 percent of Americans involved in household investments say they never research investment strategies or new investment opportunities.

Of those who said they do research, 63 percent do it quarterly or less often. So… not that good. Here’s why: 63 percent of the 72 percent who do any research at all means that just 49 percent – fewer than half – of people who are involved in household investments are doing any research about them.

We’re big proponents of “engaged investing,” so we definitely think you should be taking a look at your investments regularly. But we’re not alone: the experts we spoke to agreed.

Brandon R. Redman, managing partner of Securian Advisors Northwest, noted that investors should “review the strategy each time they update their goals, almost in lockstep.”

But how often should you be updating your goals? According to Redman, “it’s a good idea to look at [them] annually just to make sure they’re still relevant and accurate.” But he adds that it really does depend on the goal: if things change in what you’re trying to do (e.g., retire earlier) or what you’re able to do (e.g., potentially earn more money), you’ll need to take a closer look.

When and how to update your goals and investment strategy

Of course, there’s no one-size-fits-all formula for setting investing goals or updating your strategy. But these general principles can help guide you.

1. Rebalance. Lou Haverty, CFA and founder of Financial Analyst Insider, suggests rebalancing your overall portfolio every year. Passarelli, on the other hand, advocates a monthly rebalance. If you’re investing with M1, you can take advantage of our dynamic rebalancing feature. The important thing, though, is to understand that fluctuations in prices of your individual assets will cause your asset allocation to shift. Regularly resetting it (aka rebalancing) will ensure that you’re following the plan you set for yourself and not over- or under-exposing yourself to risk.
2. Reallocate. As you get closer to your financial goals (like retirement), it’s wise to shift the overall allocation of your investment portfolio. Haverty offered this insight: “I would lean toward small adjustments every eight to 10 years.” The outcome, he explained, is that, “as you’re getting older, you’re very gradually becoming more conservative in your investment strategy.”
3. Reevaluate. Maybe you’re saving for a vacation home but decide, after a few years, you’d be happier not doing maintenance on two properties. Or maybe the cost of what you’re saving for changes dramatically (college tuition is a great example of something that’s gotten significantly more expensive in recent years, as this Investor Junkie article notes). For longer-term goals, it makes sense to sit down every year to make sure that a) you still want the same things, and 2) they still cost the same amount you budgeted for. If anything has changed, you’ll have to update your investment plan and strategy accordingly.
4. Respond. As both Haverty and Johnson acknowledged, even the best-laid plans need to be adjusted when major life events change your circumstances. A divorce, for example, should trigger a major reconsideration of your investment plans, goals, and strategy. Ditto for marriage, the birth of a child, major unexpected expenses, and any other event that materially affects your finances.

When not to update your investment strategy

Just as important as when to update your investment strategy, though, is when not to. Our experts were adamant on this one: don’t update your investments because of your emotions.

Haverty, for example, emphasized that an investment strategy for long-term assets should be “well thought out and measured – not based on emotional reactions to short-term market swings.”

Johnson agreed: “Investors should not concern themselves with broad market moves or the crisis du jour,” he said. “It is best to develop your IPS in a rather calm market. Developing an IPS in a volatile market or during major stories is problematic. The whole point on an IPS is to guide you through changing market conditions. It should not be changed as a result of market fluctuations.”

Still, most of us are predisposed to fall into classic investing mistakes because of our psychological responses to what’s happening around us. In fact, some analysts claim that psychology is the factor that plays the biggest role in our worst investing decisions.

Awareness of how our brains trick us into investing poorly can help us make better decisions. Among the psychological phenomena that can cause the most damage are these (pulled from Dalbar’s Quantitative Analysis of Investor Behavior study):

• Loss aversion: Aka “panic selling,” in which we don’t want to lose any more and so sell at the bottom of the market.
• The herding effect: Doing what everyone else is doing.
• Narrow framing: Thinking only about one part of your portfolio while ignoring the whole.
• Anchoring: Focusing on past performance rather than attempting to understand the present.
• Mental accounting: Doing mental acrobatics to justify certain failures with successes in other areas.
• Lack of diversification: Including only closely correlated assets (especially if you think you have a diverse portfolio).
• Regret: Letting past disappointment prevent you from taking necessary action.
• Media response: Following media recommendations without considering their biases or motivations (to benefit advertisers, e.g.).
• Optimism: Being too upbeat about potential outcomes can make losses even harder to bear.

7 takeaways for better investing in 2019

We just covered a lot of ground. The good news is that nothing in here is really brand new. If anything, it should reinforce the best information you already had about investing. And if you’re completely new to investing this year, consider this article a useful primer. You can find more detail on these topics on many of the pages we linked to above.

In the meantime, here are seven tips to keep you on track, regardless of your investment goals:

1. Have a plan and write it down. The level of detail here isn’t important, especially at first. The key is to get your plan (and goals) in writing so you know what you’re measuring against.
2. Rebalance regularly to make sure you’re on track. You can do this monthly, quarterly, or yearly – or, if you’re investing with M1, let our platform handle it automatically. The key here is to acknowledge that rebalancing is important for keeping you aligned with your goals – which is why we’ve made it such an integral part of the M1 platform.
3. Review your goals occasionally and as needed. Definitely take a look at goals after major life events, or when you change your mind about what you want. But also make an occasional review part of your regular plan so you can adjust to changing costs of target purchases.
4. Review strategy every time you change your goals. Short-term goals, for example, need a different strategy than long-term goals.
5. Review your long-term strategy yearly. Yearly check-ins give you a chance to review your performance and make sure your strategy is still on track. If you have any short-term goals, review them more often, as needed.
6. Know and guard against psychological tricks that can hurt your investing performance. You developed a plan based on logic. Stick with it. Have faith. Know that you’re an emotional being and that those emotions can negatively affect your investment performance if you’re not careful.

Still feeling overwhelmed? Consider this final bit of insight from Michael Osteen, founder and chief investment strategist of Port Wren Capital, LLC: “Most successful investors start with an investment strategy and stay with it. For example, if you use a long-term value contrarian strategy, you will find it works in both bull and bear markets and thus serves you well over many years.”

So really, to borrow a phrase from the sportswear industry, just do it. Happy investing!