Don't be a portfolio watcher

By Linda Stern

WASHINGTON (Reuters) - Here's some helpful advice for anyone who's losing sleep watching Wall Street and worrying about their retirement: Try not to watch. Seriously.

New research shows that the less often investors check the value of their portfolios, the happier they are. And the wealthier they are, too: Less trading equals more dollars at the end of the day. Trying to micromanage while the market is on a wild ride usually backfires.

"Most people should probably look at their portfolios less often," says David E. Hultstrom, a Woodstock, Georgia, financial advisor. He conducted an analysis of the stock market performance over the last 50 years, and the likely moods of investors in the market during that time. His conclusion: if they had put $1,000 in the market at the end of 1957, they would have had a compound annual return through 2007 of 11 percent, and accumulated $184,353. But those who watched the daily returns of the market would have been sad 47 percent of the time -- on those days when share prices dropped.

Of course, it's hard to simply ignore stock market sell-offs like the one that occurred Monday, following Lehman Brothers bankruptcy filing and the Merrill Lynch fire sale. But instead of trying to trade frenetically enough to catch the wave (you can't), you're better off simply positioning yourself for the long haul and then leaving your financial life on autopilot when the going gets really rough.

Here are some strategies you can adopt that will protect you during the wild rides:

-- Analyze your investment portfolio for fees. The disarray of so many Wall Street firms seems one more bit of proof that the so-called 'experts' don't always make sound financial decisions. So paying lots of money for 'expert' advice doesn't seem like the way to go. There are mountains of research which demonstrate that less expensive investment strategies can return more to investors than more expensive strategies.

Check all the mutual funds you own. (You can analyze them here). If they have higher-than-average expense ratios, consider replacing them on a case-by-case basis, with cheaper mutual funds or exchange-traded funds. Put your broker to the test, too. How much are you paying (in direct fees or commissions and sales charges) for his advice? Is he making it worth your while by beating the returns you could get in a generic index mutual fund portfolio?

-- Diversify. Check to make sure that you own a mix of investments: stocks, bonds, money funds, and foreign investments. And diversify further by making sure your stock portfolio is broad enough to include different kinds of companies. Recheck this at least once a year, and rebalance to make sure your portfolio remains mixed. That will protect you from being wiped out if a particular company or sector falls off a cliff.

-- Continue to invest regularly. The money that's taken out of your paycheck this week to buy stock funds will buy more shares, at better prices, than the money that came out two weeks ago. That's good, right? If you keep investing during good times and bad you'll ultimately build a solid nest egg, accumulated at decent prices.

-- Keep some cash liquid. That way you won't have to sell assets at depressed prices. This is especially important for retirees. If you keep three to five years of living expenses in a safe place, like bank certificates of deposit or money market mutual funds or short-term, high-rated bonds, you'll be able to invest the rest of your money in more long-term lucrative securities. You won't have to sell your bank stocks this week, for example, just to pay your mortgage.

-- Go fishing, or read a good book. If you've taken these steps to position yourself for the long haul, try to ignore the short haul, 'lest you fall into the typical trap of selling at the bottom and buying at the top. If you're getting nervous about declining share prices, calm yourself with whatever stress reduction techniques work for you. Maybe that means turning off CNBC and switching to some old Cosby Show or Seinfeld reruns. In the long run, you'll be happier.

(Editing by Gunna Dickson)