This is an excerpt from Dollar Scholar, the Money newsletter where news editor Julia Glum teaches you the modern money lessons you NEED to know. Don't miss the next issue! Sign up at money.com/subscribe and join our community of 160,000+ Scholars.
I have a problem with Crock-Pots, and it’s not that one killed my boyfriend Milo Ventimiglia in This Is Us.
I’m just incapable of letting them do their job.
No matter what I’m making in my slow cooker, whether it’s my favorite spinach tortellini soup or my amazing apple cider, I can’t seem to let it sit. For however many hours the dish is cooking, I’m messing with it — walking into the kitchen, opening the lid, peeking in, conducting a taste test, adding a little more garlic or another shot of rum. I know the whole point of a Crock-Pot is to set it and forget it, but I can’t seem to stop tweaking the recipe. I want the final product to be PERFECT.
I have a similar issue with my retirement accounts. Like with my Crock-Pot, I’m aware that I’m supposed to let them run in the background, but I get antsy. I want to look at my 401(k) balance, especially when I read about catastrophic market events. I feel compelled to make sure everything’s OK in there, simmering away nicely like it should, for Future Retired Julia Glum-Ventimiglia.
How often should I check my 401(k) balance?
According to Leanna Devinney, vice president and branch leader at Fidelity, that’s an age-old question. Never checking my 401(k) at all is probably a bad idea, but there's also danger in checking it too often.
To a degree, I need to monitor my 401(k) — and my individual retirement account (IRA), for that matter — in order to stay informed. Peeking at my balance(s) can help me determine whether I’m on track for retirement, whether fees are eating up too much of my money, whether I’m complying with IRS rules about contribution limits, et cetera.
“It’s critical that we participate in and contribute to our own retirement plans,” adds Heather Winston, director of financial planning and advice at Principal. “When you're checking that balance, it gives you the opportunity to get a quick, point-in-time sense of how you're progressing toward that goal and how your investments are faring.”
To that end, Winston recommends checking my 401(k) balance a minimum of twice a year. Every six months or so, I can go in, review my investments and rebalance my portfolio.
But it doesn’t need to be a daily thing.
The markets are constantly shifting due to world events, so my balance is always going to be fluctuating. Volatility is normal, especially when my asset allocation is aggressive (like it tends to be when I’m younger and further away from retirement).
Investing for retirement is a long game: It’s important not to get spooked or respond emotionally to big swings. And staying the course is a lot harder to do if flashing red numbers and scary downward arrows are staring me in the face.
“If you’re looking with a lot of frequency, you may then take action that's unnecessary,” Winston says. “You might rebalance assets excessively. You might make a knee-jerk reaction to what you're seeing — ‘Oh, my portfolio is down; I’m going to sell everything and go to cash’ — without a plan on when to get reinvested.”
It’s “ignorance is bliss” in action. I'm 30 years from retirement at minimum, and most upsets will smooth out over time anyway.
“There's always a headline out there about the world ending,” says Tyler End, co-founder of Retirable. “There are going to be a lot of ups and downs, and it's best to just ignore those.”
So what’s the sweet spot? End suggests checking how my 401(k) is doing once a quarter, aka four times a year.
If I get in there and I’m really unhappy with the results, he says to take a deep breath and step away from the keyboard. I should investigate what’s happening in the world — “maybe Russia started a war with Ukraine and triggered a downturn in emerging markets,” for example — and carefully evaluate whether it’s time to make a change. I may even want to talk to a financial advisor.
I might be less likely to tweak my 401(k) if I feel secure in the fact that I have an overarching savings strategy that matches my goals and time horizon. Devinney suggests setting up three buckets: an emergency fund containing three to six months’ worth of essential expenses in cash, an intermediate bucket focused on objectives like buying a house or going on vacation, and a long-term retirement portfolio that’s oriented for growth.
Knowing that I have several plans in motion to accomplish several goals can take the pressure off the 401(k) figure that confronts me whenever I log into Fidelity — and give me the confidence “to ride out these turbulent times,” Devinney adds.
The bottom line
I need to stay on top of my 401(k) and IRA balances, but it’s risky to check too often. I may be tempted to make changes simply because I’m tracking day-to-day fluctuations that will even out in the long run.
Two to four times a year is enough for now. But as my assets and the quantity of my investments grow over time — and I get closer to retirement age — I'll likely start looking a bit more frequently. And that’s OK.
“It's kind of like Goldilocks [and the Three Bears],” Winston says. “[Find] that ‘just right’ middle ground — what’s comfortable for you as an investor and what makes sense, given everything that's on your list of priorities.”