Do you check the value of your portfolio? If so, how? Most of us get regular updates … monthly, quarterly, whatever, and with an online broker can even check in at any time to get a snapshot.
These updates have one thing in common … they tell you how many dollars your portfolio is worth. Obviously this can fluctuate wildly, especially in recent months. But as popular as it is, it’s not the only way, and far from the wisest.
If you own your home and possibly other realty directly, do you check its value like that? Not likely, if even possible. You can’t just turn on CNBC or Bloomberg and get an instantaneous quote. It’s not in the daily paper. It needs to be understood that the mere availability of real time quotes doesn’t make any asset fundamentally different than another, but may subtly influence how you think about your investments and even how you manage them.
We’ve also been on ad nauseum about the unreliability of the dollar or any currency as a measure of value. Currencies are securities too, and fluctuate in value just like any other. This further calls into question the wisdom of translating everything into dollar values when thinking about your investments.
There is an alternative. Instead of looking at your statement or quote screen and thinking “my portfolio is worth $X today”, you can think “my portfolio contains W dollars, X shares of ABC stock, Y shares of DEF bond ETF, and Z ounces of gold”. The actual cash in your account is the only dollar value that’s hard fact. The rest is an ephemeral estimate of how much you could get for those other assets if you were to trade them all for dollars right now. But just how relevant is that? Are you really about to trade everything in your portfolio for dollars this instant?
This can affect your behavior. If you have so-and-so many shares of say, a broad stock index fund like VT, and look at it today in terms of dollars, your immediate reaction may be to think “wow, this is really going down, maybe I better dump it”. But first ask yourself … is it really justified to say it’s “down” when I don’t even have a reliable yardstick of value? Your 100 shares of VT might be traded for fewer dollars than six months ago, but either way you still have 100 shares of VT. That hasn’t changed a bit.
You might rationally determine that you’d rather have more actual dollars, maybe because you think they’ll outperform shares of VT for long enough to make a trade worthwhile. And that’s perfectly reasonable. But reducing every asset to dollar value instead of thinking about each in its own right can impart a subtle emotional bias to your portfolio management that can work against your longer term success.
Don’t let brokerage statements and quote screens box you around. Thinking about your investments independently of dollar value can help you avoid mistakes and keep your investing behavior rational.