A Roth IRA is a retirement account and an investment that should be treated accordingly with retirement in mind. And, like all investments, retirement accounts such as a Roth IRA need a certain level of monitoring in order to ensure that your retirement funds are on the right track and are allocated in the best manner for your goals.

So, how closely should you monitor your investments? It depends on when you plan on actually retiring. If you are planning on retiring in the next five to ten years, you will want to closely monitor your portfolio. But, if you have several decades until retirement, you can afford to let your investments grow with more of a hands off approach. If you have confidence in the investments that you have chosen to be a part of your Roth IRA and have a sound investing strategy, you can afford not to monitor your portfolios closely.

Passive Monitoring May Be Your Best Strategy

In many ways, investing for retirement should follow a set investing plan and not be adjusted often. I am a big fan of the buy and hold methodology of investing, and I practice dollar cost averaging or systematic investing where I purchase shares each month in my Roth IRA with a set amount of money. Now, do not mistake buy and hold with buy and forget. You should still monitor your investments.

Once you research the stocks or mutual funds and decide on which to purchase, you will want to passively monitor those investments to ensure that they are investing like their prospectus said they would. You would not want to invest in a mutual fund that promises to invest solely in large cap blue chip American stocks only to find out later that the mutual fund managers started buying stocks of companies in emerging markets. That can throw off your asset allocation. You will also want to passively monitor mutual funds that you purchase shares in to make sure that the managers are not leaving the mutual fund company, and the company for any fraud that the news may pick up on. You should run, not walk away from any investment company that is accused of wrongdoing.

Rebalance Your Funds Every Year

For most people, you should consider only rebalancing your investments once a year. Many financial planners recommend picking a date such as your birthday or immediately after the New Year and rebalance your portfolio on that date. That will keep you consistent, and it will help you remember which day to rebalance. One of the worst things that you can do is watch the market and try to time the up and down swings of the market

Historically, the stock market has returned 8% annually over the past 100 years. But, most people try and time the market and fail by either panic selling when stocks and mutual funds take a dip or buy more of a hot stock that is at an all time high. Both lead to investment failure. Studies have shown that trying to time the market can result in an increase of trading costs and an annual return less than the rate of inflation.

Final Thoughts

It is hard to watch any investment and especially your retirement funds take a nosedive, but that is exactly what history has shown us will happen over the course of our investing lives. Saving for retirement can be a roller coaster, but it does not have be a ride that you jump off and onto in the middle. If you have a sound investing plan for retirement, you should monitor your investments passively in order to make sure your mutual fund managers are following their stated strategy and not up to any shenanigans.

And, then you should simple rebalance your portfolio once a year. The beauty of retirement funds such as a Roth IRA is that you do not need the money for a very long time. That allows you to take a much more “hands off” approach that is ultimately better for your rate of return.

Photo by Mark via Flickr

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