| The media has no trouble telling you what
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| | class). If your utility fund was down 2%
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| funds to buy and when, but finding advice
| |
| | and you found out that the average
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| on when to cut a fund loose is much
| |
| | utility fund was down 4%, then this is
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| harder to come by.
| |
| | not a good enough reason to sell it. It
|
| Sometimes parting with a mutual fund can
| |
| | helps to compare your fund to its peers
|
| be a difficult task. Other times it can
| |
| | by looking at the 1-year, 3-year, and
|
| be quite easy. More often than not,
| |
| | 5-year performance. If it has
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| investors tend to sell their mutual fund
| |
| | underperformed the average of its peers
|
| holdings for the wrong reasons. So before
| |
| | in all cases, then you have good reason
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| you make a hasty decision, please read
| |
| | to sell your fund.
|
| the following list of the correct reasons
| |
| | The Fund Manager Has Changed A simple
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| to sell a mutual fund investment: You
| |
| | change of fund managers, in itself, is
|
| Need the Money Sometimes there will be
| |
| | not enough reason to sell a fund on a
|
| circumstances in your life when you must
| |
| | short-term basis. If it is a passively
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| sell your investments. It is important
| |
| | managed fund (index fund), then you have
|
| for you to weigh out alternatives to
| |
| | little to no reason to worry. If it is an
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| selling your investments because it could
| |
| | actively managed fund, then you should
|
| really hurt you in the long term (see
| |
| | keep on eye on the new manager. Give the
|
| "The Power of Compounding Interest").
| |
| | new manager a few years before you decide
|
| You may be able to get a loan or borrow
| |
| | to cut them off. Believe it or not, there
|
| the money. If you can get a rate lower
| |
| | are plenty of quality fund managers to
|
| than your expected returns on your
| |
| | replace your manager no matter how good
|
| investment, it might be best to hold off
| |
| | he or she was.
|
| on selling your investments.
| |
| | The Fund Size Has Changed Sometimes size
|
| Your Situation Has Changed If you are at
| |
| | does matter! One great example is a small
|
| a different stage in your life, you may
| |
| | cap fund. A small cap fund manager may be
|
| want to consider selling your fund. As
| |
| | great at picking small company stocks and
|
| you near retirement, you may want to
| |
| | their success can often lead to their
|
| consider more conservative funds. If you
| |
| | failure. Here is an example: Fund Manager
|
| get married, you may need to compromise
| |
| | Joe is great at picking a portfolio of 30
|
| your risk tolerance and desired returns
| |
| | small company stocks.
|
| with that of your spouse.
| |
| | His success brings a lot of attention to
|
| The Fund Has Changed Its Style or
| |
| | his fund in the media, resulting in a
|
| Objective It is important to consider
| |
| | large increase in assets in his fund.
|
| your original reason for buying a fund.
| |
| | The problem is that he now has such a
|
| If you bought a small cap fund to help
| |
| | large amount of money to dump into these
|
| diversify your portfolio, but you notice
| |
| | small stocks that he may end up owning
|
| that it is investing in large blue-chip
| |
| | 10% of a particular stock, which leads to
|
| companies, then you should consider
| |
| | liquidity problems (because his fund
|
| selling that fund.
| |
| | becomes a major shareholder of the
|
| The Fund is Underperforming This reason
| |
| | stock). To get around this problem, he
|
| for selling, although valid in certain
| |
| | has to hold more stocks. It was tough
|
| conditions, is where most investors make
| |
| | enough for him to pick 30 quality
|
| a mistake. When calculating performance
| |
| | companies, but now he is forced to find
|
| don't look at too short of a period and
| |
| | 50 or 60.
|
| don't compare apples to oranges.
| |
| | The Fund's Expense Ratio Rises A small
|
| It is important to base your decision on
| |
| | rise in an expense ratio is not a big
|
| relative performance not absolute
| |
| | deal, but when you see a significant rise
|
| performance. When your fund is down 5%
| |
| | you may want to consider selling the
|
| while other funds or the market in
| |
| | fund. In the case of bond funds or money
|
| general are up 10%, it is very tempting
| |
| | market funds, it is highly unlikely that
|
| to switch over to what is "hot." This is
| |
| | the fund can increase its returns enough
|
| called "Chasing Performance" and is the
| |
| | to justify an increase in the fund's
|
| best way to shoot yourself in the foot.
| |
| | expenses.
|
| When studying relative performance, you
| |
| | Remember, these expenses only subtract
|
| look at your fund and compare it to its
| |
| | from your returns.
|
| peers. If your fund is a utility fund,
| |
| | If you were considering selling your fund
|
| you should not be comparing it to the S&P
| |
| | and the primary reason for selling it was
|
| 500. When choosing a benchmark, you must
| |
| | not on the list, you may want to
|
| select funds in the same category (asset
| |
| | reconsider.
|
