Allianz Global Investors Center for Behavioral Finance onRisks The neglected variable affecting portfolio February 2016 choices in the 21st century Author In the digital age, people have far more access than ever before to their investment Shlomo Benartzi, Ph.D. accounts, allowing them to monitor the latest market changes with great ease. In this Professor, UCLA paper, we discuss how this variable—“monitoring frequency”— affects judgment Anderson School and portfolio choices. We argue that the ease of portfolio monitoring on smartphones of Management Chief Behavioral is likely to increase a behavioral tendency known as “myopic loss aversion,” where Economist, investors focus too much on short-term losses. We then ask an important question: Allianz Global Should financial advisors and plan sponsors incorporate the frequency of market Investors Center for monitoring into their portfolio recommendations? We conclude with suggestions Behavioral Finance for ways to use digital design to minimize myopic loss aversion. The current state we will look at how financial institutions can design of investment monitoring investment products that fit the monitoring We live in an age obsessed with investment patterns of their clients. In addition, we examine performance. Plan sponsors hire and fire fund how financial institutions can improve how they managers based on the returns they achieved in communicate investment performance to clients. the last couple of years. Individuals, meanwhile, keep close track of how much money they make or Let’s begin with the survey data. In October 2015, lose in the market. This white paper will investigate we commissioned a survey of 1,050 adults with a largely neglected variable of all this monitoring, retirement savings accounts and asked them which is how frequently people check their how, and how often, they checked their portfolios. investments. We will argue that, especially in the Not surprisingly, we found a wide variation in the digital age, the frequency of monitoring can have method and frequency of monitoring. As shown a large impact, influencing both how people feel in Figure 1 (see next page), while 15% of subjects about the market and their ensuing behavior. As a check once a year or less, roughly 20% check at result, it’s crucial that financial institutions monitor least once a week. The most common frequency the monitoring done by their clients. After is quarterly, with 34.5% of people getting updates reviewing new survey data on investment tracking, every few months. befi.allianzgi.com