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Know when to sell your mutual fund

Updated on October 26, 2015

Know when to sell

This article is about knowing when to sell a mutual fund. I am not talking about market timing, rebalancing, or your asset allocation changes. I am talking about when to sell a fund when it is no longer the best choice for your allocation. Knowing when to sell a mutual fund is just as important as knowing which fund to buy.

Be on guard for the warning sings. Has your fund manager quit? Has the fund company merged with another group or been sold? I would not sell a fund just because the fund has a new manager. Often the fund does better under a new manager who has studied under the old manager. Just because a fund company has merged or been sold does not mean the fund should be sold but you need to watch the fund’s performance more closely.

Check the funds performance against its index or peers. Many websites have historical data available. I like to use the most recent bottom of March 9, 2009 as a base point and go a few months out. Many good funds have way outperformed the market during this time. If you fund is lagging the market you may want to see how it did against the market the year pervious to March 9, 2009. If the market was down 50% and your fund was down only 20% your fund is doing just fine. Results over the long term are the goal. You should expect to see balanced funds and conservative growth type funds do better than the market when the market is going down but they will not do as well in times of market strength. These types of funds can outperform the market over the long haul and be more suitable for the risk adverse investor.

Sell your fund buy the best

Owning the best funds can help your savings grow!
Owning the best funds can help your savings grow!

Large funds are seldom top performers!

If the fund gets too big sell it and buy another mutual fund in the asset class you wish to be in. Large fund have a very bad track record. Opinions differ but my upper threshold is 3 billion in assets for domestic stock funds and 10 billion for international funds.

Mutual fund companies often close their funds to new investors to keep them from becoming too large. Most fund companies want to maintain the performance of their funds.

Good asset allocation and solid mutual fund selection are the keys to great returns on your investment. By choosing your investments wisely you can significantly increase your returns.

Selling a bad mutual fund can be one of the wisest decisions you can make. Do not get emotionally attached to your mutual fund.

Develop your own asset allocation and invest in the best funds in those asset classes. Once the investor has their asset allocation select the best small cap, best mid cap, large cap, bond, global, and even concentrated portfolio funds for their portfolio.

Regardless if you are investing in your IRA, 401K, 403B or taxable account invest your money wisely. How you invest is equally as important as how much you invest.


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