When to Sell Mutual Funds

Chuck Jaffe of Marketwatch looks at an interesting question: "When should I sell a mutual fund holding?"

He notes that the primary reason most people sell funds for is poor performance. But that’s often not a good reason to dump a fund. A fund may be the best performer in a sector that’s temporarily out of favor. (Imagine selling a REIT fund in 2000 becuase it under performed the broad market?)

Jaffe observes — "Knowing why you should sell a fund is every bit as important as knowing what to buy. If you are wondering whether your funds are worth hanging onto, consider the following:"

— How has the fund done compared to its peers?

— Has the fund changed strategies or missions?

— Has management changed?

— Have you reached your goals, or will you soon?

— Would you buy the fund again today?

That’s good advice for mutual fund investors.

Source:
How to know when to sell Mutual Funds
Chuck Jaffe
MarketWatch, 12:02 AM ET Aug. 21, 2005 
http://www.marketwatch.com/news/yhoo/story.asp?guid=%7BB1051C3C-70BA-4A16-BB43-61143D6F4CE3%7D&siteid=myyahoo&dist=myyahoo

What's been said:

Discussions found on the web:
  1. Larry Nusbaum, Scottsdale commented on Sep 4

    Random thoughts:
    1. When the market has dropped below the 200 DMA.
    2. When the sector is in distribution and has fallen below it’s 50 or 70 DMA.
    3. When you have a decline of 7-10%
    4. When the sector has risen high enough to be too overweight in your specific portfolio.
    5. Upon inheritence
    6. When you broker’s baby needs a new pair of shoes.
    7. When you want to lighten up and take money off the table after a big move in the sector or the market.
    8. When you sit down each quarter or each year to re-balance.
    We don’t have to be all in or all out……..

  2. nate commented on Sep 4

    People may want to consider taxes-

  3. Larry Nusbaum, Scottsdale commented on Sep 4

    People may want to consider taxes-
    Posted by: nate | Sep 4, 2005 5:01:00 PM
    =========================
    VERY BAD IDEA, nate

  4. nate commented on Sep 4

    why is that a bad idea? i am not saying taxes should be the only guide or even the primary guide. however, taxes arguably should be considered.

  5. Larry Nusbaum, Scottsdale commented on Sep 4

    Because, taxes should not be considered. (Another reason why I like real estate: no tax worries)

  6. Barry Ritholtz commented on Sep 5

    What Larry is suggeting is that trading decisions colored by Tax elements tend to work out to the detriment of both — i.e., not selling something that’s showing signs of deteriorating because you have a profit and dont want to pay capital gains taxes on it. Oftentimes, you end up losing the profit (and hence have no capital gains and therefore pay no taxes).

    My goal is pay $1B in capital gains taxes.

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