Today we begin with a little story about ostrich investing. Our heroine, Donna, decided that she had a good life and wanted to give something back. Donna decided to sell her house and spend a year in Africa helping to build schools.
Back on October 2, 2008, she took the $100,000 equity from selling her house, deposited it into her brokerage account and put all of it into the S&P TSX index (ticker: XIU). The sale went through at $16.80 per unit, and she hurried off to board a plane for what promised to be a rewarding adventure.
After a lot of hard work and making some lifelong friends, but little contact with Canada, Donna arrived back in Canada last night to stay with her parents. After a meal and catching up for a few hours, Donna decided to take a look at her online brokerage account.
Imagine the devastation! Donna is completely oblivious to the turmoil in financial markets over the past year. There was real estate bust, the credit crisis, and the stock market crash. At one point in March, her portfolio was down nearly $32,000.
However, coincidentally, yesterday’s closing price for XIU was $16.80, exactly what she paid for it nearly a year ago. Her stock is still worth $100,000, and her account has $2020 in cash from the three dividend payments. Unaware of the roller-coaster ride her portfolio experienced, Donna is mildly disappointed that she didn’t make more money.
Other investors who held on through this period, but watched their portfolios daily feel like they’ve been through the ringer. Their results match Donna’s, but human nature is such that they feel far worse than she does.
Investors could take a lesson from Donna. If they are comfortable with their mix of investments, then there is no need to monitor them on a daily basis, particularly if the assets are in broad-based index funds.
I’m not advocating ignoring investments for an entire year. After all, you should at least check that your account statements are accurate. But compulsively checking prices multiple times per day is no way to live.