32 When should I sell a mutual fund?
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This article is from the FAQ, by with numerous contributions by others.
32 When should I sell a mutual fund?
While one could never hope to cover every circumstance that would warrant
the sell of a mutual fund investment (or any investment for that matter),
here are some sound reasons for considering parting with a particular
mutual fund holding.
The fund's style has changed. If you have invested in a large-cap growth
fund and fund has begun investing in smaller, riskier investments it might
be time to shed this fund. This can also operate conversely. If your
fund's objective is to invest in emerging growth and begins becoming heavy
with large and medium cap stocks, you might want to shift your money into a
fund that more closely fits your investment objective.
The fund consistently lags behind. A single quarter or year does not a bad
fund make but if your fund has consistently lagged its peers, you may want
to cut this one loose. Also, it's important to keep in mind that you have
to make a fair comparison. Do not compare your utility fund against the
S&P500. Compare it against similar funds with similar objectives. If you
find that your fund has underperformed its peer group over 1, 3 and 5 years
it's probably time to move on.
Management has changed hands. While this factor alone is not truely
justification for moving your assets, it should send up a red flag for you
to scrutinize performance more closely. Most funds have plenty of able
managers ready to take the helm but you should be diligent in making sure
that your new manager stays competitive with his/her peers.
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