I donated blood a few weeks ago. Before you give me too much credit for being a wonderful humanitarian, I’ll spill the beans: they reward you with all the free cookies and chips you want when you’re done. That’s music to the ears of this reformed chunky kid. Bleed for free cookies? Sign me up!

I enjoy donating blood because it feels good to pay it forward by helping others in need. But there’s a reason my profession is finance and not medicine. What I don’t enjoy is seeing the needle go in my arm. (Just typing it makes me cringe frankly.)

I know if I watch the needle go in, there will be no blood donated aaand no free cookies…instead, I’ll get a sad sticker that says “I tried to give blood today.” What’s my solution? I simply choose not to look. As it turns out, this strategy of not watching the needle go in my arm can help investors achieve their financial goals too.

Losing Money Hurts 

For many, losing money hurts even more when you watch it happening. According to economist Richard Thaler, losing money feels twice as bad as making money feels good. Psychologists call this phenomenon “loss aversion.” The following study demonstrates the substantial effect it can have on investors.

The Study

Investors were split into two groups with the same starting portfolio – 70% stocks, 30% bonds. Group 1 checked their portfolios monthly, while Group 2 reviewed their decisions annually. The results? Group 1 ended up with a much more conservative portfolio – 41% stocks and 59% bonds. But Group 2? They stuck to their original allocation – 70% stocks and 30% bonds.¹ In other words, the frequent portfolio-checkers took less risk and earned less in the long run.

The Painful Lesson 

The more you peek at your portfolio, the more chances you have to see losses. The more losses you see, the more pain you feel. The more pain you feel, the more likely you are to opt for a less risky portfolio to reduce the pain, which results in lower long-term returns and a longer path to achieving your financial goals.

Earning your Financial Cookies

Clearly, your goal as an investor is not to avoid all pain and ignore any market downturns. Rather, the goal should be to cultivate an awareness of how our natural tendency to react in situations that threaten financial losses can have a significant impact on investing success. And to build a strategy around reviewing your portfolio that reduces the chances of human instinct tripping you up.

By making an intentional effort to look at your portfolio less (especially when it’s down), you can lower the chances of making rash investment decisions and raise the likelihood of success in achieving your financial goals – one more way to win more by losing less. Looking at your portfolio less can indeed help you earn more.

Now’s a great time to consider donating blood with the Red Cross – you could save someone’s life – I’ll save you some cookies.

Source: 1 https://institutional.fidelity.com/app/literature/presentation/968173/behavioral-finance.html

Castle Quote: If you don’t change what you are doing today, all of your tomorrows will look like yesterday.

– Jim Rohn