The Sell Decision With Mutual Funds: Knowing When to Walk Away
Many people hop in and out of investments all too frequently. That's due in part to the fact that mutual fund advice and information are so freely available that individuals often are persuaded to switch from their more prosaic funds to those that have been delivering more exciting short-term returns. At the opposite extreme, others take the attitude that, once bought, mutual funds can practically be held for a lifetime. That can be true in some instances, but it's often not—you really must rethink your portfolio periodically.
What are the legitimate reasons for selling funds, and when should you stay put?
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Lousy Performance
Continuing poor performance of a fund relative to a relevant benchmark and its peers is the number one fund-related reason for selling a mutual fund. You should focus on a fund's returns over the past one, three, and five years. Longer periods can be misleading if there have been major changes in the fund or its management.
While quarterly returns can be monitored to alert you to signs of deteriorating performance, one-year returns are the shortest relevant performance span for long-term investors to examine. However, that doesn't mean you should automatically sell if one-year returns turn up poor. Deciding how much time to give a poor performer to rebound is not easy, but you should seriously start to think about selling a fund that has lagged its benchmark and peers for the past 18 months to two years.
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Discussion
Diminishing Assets of your fund is seldom mentioned a a reason to sell
posted over 2 years ago by Bruce from Texas
If Value drops 10 - 15% I will sell and watch the price, if it goes up to where I sold I'll buy it back and set a downside limit order.
posted 6 months ago by Gerry Page from Maine
I'm a purest in the sense that if a fund says it's a "domestic mid cap value" then it needs to be that. What I have noticed over the last several years is that many well known and respected managers have dipped into other markets to inhance performance. (in my opinion) Third Ave Value has been the biggest offender I have seen to date establishing itself as a premier mid-cap value fund and over a 5 or 6 year period moving to a "world fund" go any place buy anything type of fund.
If one is using an asset allocation model that style drift behavior can reek havoc.
Another offense and reason to consider selling is domestic funds taking on larger and larger percentages of foriegn issues. I have noticed it particularly in the large cap arena. Again if you are allocating to certain specifics, that type of fund behavior throws ones percentages off and will effect returns and risk. (both positively or negatively - you just don't know which one).
posted 6 months ago by Robert Marriott from Virginia
