With a third of investment app users (35%) checking their balance every day and nearly half having three or fewer assets in their portfolios, according to a report by investing comparison platform, InvestingReviews.co.uk, IFAs have warned of the dangers of “obsessively checking investments” and that it can be “hazardous to your wealth” and “potentially damaging to long-term gains”. Their views are below.
Scott Gallacher, chartered financial planner at Leicestershire-based independent financial advisers, Rowley Turton: “As a financial adviser, I am concerned that a significant number of investment app users are checking their balances frequently and have a limited number of assets in their portfolios. It’s crucial to emphasize the importance of having a well-diversified investment portfolio that aligns with people’s financial goals and risk tolerance, and to remember that investing is a long-term strategy that requires patience and discipline. Research has shown that those who check their portfolios too often tend to make more changes, which can lead to lower returns in the long run. Therefore, as a financial adviser, I encourage clients to focus on a long-term investment strategy and to avoid frequent portfolio check-ins that can lead to unnecessary changes.”
Philip Dragoumis, owner of London-based wealth manager, Thera Wealth Management: “The fact that investment these days is so frictionless and easy, and can be done and undone in a matter of a few minutes from your phone, has the potential to be hazardous to your wealth. We saw the bubbles that this caused over lockdown with trading sites like Robinhood in the US and similar apps in the UK. Generation Z came to view investing as similar to playing Fortnite with their friends and unsurprisingly this ended badly. It is important to save and invest long term, and not everybody has the assets and income to afford a financial adviser to guide them. But from a behavioural investment point of view, watching your portfolio go up and down every day will eventually lead you to a mistake, which is the primary reason individual investors have such poor returns. Financial education, currently non-existent in schools, is key.”
Matt Cross, senior adviser at Elmstone Financial Planning: “Obsessively checking your investments can not only be damaging to your portfolio but also to your mental health, particularly in times of high volatility in the markets. That’s not to say you shouldn’t check your investments at all. And for some investors, having a small percentage of your portfolio in accounts that you trade can be a good way to engage with the financial markets and gain a better understanding of what’s happening within the investment world. But for investments that form part of your long-term portfolio, it can be a pointless exercise and potentially damaging to long-term gains, due to the tendency to react to market movements. The key is to have a diversified portfolio of investments and a strategy in place to provide a suitable return over the long term — and avoid the temptation to relentlessly tweak it.”
Joshua Gerstler, chartered financial planner at Borehamwood-based The Orchard Practice: “The only people who should be checking the value of their portfolios regularly are fund managers and day traders. Everyone else is likely to be investing for the long term and there is very little to be gained by checking the value frequently. You would not pull out the seeds you have planted to see how they are growing beneath the soil and nor should you do the same with your investments. Doing so will cause an emotional reaction and one of the secrets to being a successful investor is not to make any emotional decisions.”
Fanny Snaith, a Cheltenham-based certified money coach: “Most people using these apps are doing it with small amounts of money. These apps are brilliant for beginners and they do provide an advice gap, because IFAs are often disinterested in clients who are building up their portfolio from scratch with little money. The danger is when the amounts become larger and then are not treated seriously, with the portfolio running the risk of being out of balance. More knowledge is definitely needed as the sum invested grows, but does that have to come from an IFA? Not necessarily, these days.”
Simon Jones, CEO of InvestingReviews.co.uk: “It’s incredible to think that a fifth of some platforms’ users are logging into their app multiple times a day, and almost half of users of some of the most popular apps are checking in at least daily. If you’re using trading apps for your investments, remember that you’re playing with real money, and don’t let yourself be manipulated by simple tricks like flashing lights and league tables. We call on the FCA to clamp down on the worst practices and provide solid guidelines so the industry can clean up its act. Platforms should be required to offer education on investing and trading to prevent inexperienced users from gambling with their life savings.”