Should I check my retirement accounts daily?

A reader asks: Should I check my retirement accounts every day?

Archer responds: Professional money managers like to obsess over something called “volatility.” By that they generally mean fluctuations in the prices of assets – stocks, bonds, etc. All kinds of tools have been created to measure the magnitude of those changes, the best known being Standard Deviation and the Sharpe Ratio, the brainchild of the Nobel Prize-winning William Sharpe. The former measures the range of variation from a mean, or average. The latter seeks to capture what is known as “risk-adjusted returns” through a process that involves a bunch of math. The relationship it purports to describe, as is generally the case with this kind of thing, is that of risk to reward.

There is even an index that is said to forecast volatility called the CBOE Volatility Index, or VIX. Also known as the “fear index,” the Vix captures what is known as “implied” volatility: the expectation for future turbulence as reflected by speculation in 30-day S&P 500 index options. Over the past year the VIX has ranged from as high as 31 (more volatile) to as low as 13 (less volatile). It’s at the lower end of that range at the moment.

But those expectations can change quickly when, say, Russia invades Ukraine or Silicon Valley Bank craters. And Vix-related investment products are again proxies, essentially twice removed from real events: a speculation on a speculation (future expectations for volatility). While the Vix itelf is not tradable, various products have sprung up to allow for speculation on future volatility based on the index.

It's all very amusing but for most investors it’s beside the point. Important to keep in mind is this – volatility is a representation of risk, not the thing itself, if by risk you mean what most people think they mean: the possibility of never seeing their money again. Volatility generally results in a permanent loss under three circumstances: if you are forced to sell when an asset is temporarily depressed, if you get nervous and dump an asset just because it went down, or if the drop in price represents new information and the asset is marked down – a true decline in value.

The problem is that it’s not always easy to sort this out, particularly when it comes to individual stocks. Most of the time daily stock market movements are just noise – they are entertaining noise but they don’t usually signify much. A huge industry has been built up to bloviate on this – on CNBC, on Twitter and TikTok. Legacy print and online media dedicate acres of space and billions of electrons to market commentary. But does anyone really know why the markets went up one day and down the next? Not really.

So should attention be paid? That depends. For those interested in these things, there is entertainment value for sure. In fact, market coverage is pretty much designed as entertainment. So that when CNBC reports that, “the S&P 500 bounced off its 50% Fibonacci retracement level going back to the March 2020 lows,” you can nod your head knowingly. “Yes,” you can say to yourself, “That Italian mathematician (born circa 1170) really knows his stuff.” 

But is that a call to action? Probably not (not investment advice). Instead, take a quick peek at your portfolio if you must, and then return to reading your dog-eared copy of the Book of the Abacus.

Woof!