Guidelines About When Is The Right Time to Sell Your Mutual Funds

written by: Jessica Serol; article published: year 2006, month 07;


In: Categories » Legal and finance » Stocks and mutual funds » Guidelines About When Is The Right Time to Sell Your Mutual Funds

If your fund becomes one of the worst performers, consider selling. However, you need to look at more than just the fund’s rating. Consider these guidelines for determining when to sell a fund:

  1. You may want to sell if you have overlapping stocks in your portfolio. (For more about overlapping stocks, see the sidebar “Checking for overlaps in your mutual funds.”) You can use the Morningstar Portfolio X-Ray feature (portfolio.morningstar.com) to discover whether the two growth mutual funds that you own are holding shares in the same company. To stay diversified, you may want to sell one of the mutual funds and replace it with another mutual fund.
  2. Look at the performance of comparable mutual funds using Personal Fund (www.personalfund.com). If a similar fund’s overall performance is down 10 percent, your fund is down 16 percent, and your fund’s performance consistently trails its peers, your fund may be a loser.
  3. If your fund drifts from its original investment objectives, it’s not meeting your asset allocation goals. This underperformance can become especially problematic if the drifting fund spoils your efforts of diversification and doesn’t meet your asset allocation goals.
  4. Keep track of changes in your fund’s management. If the fund hires a new money manager, that person may have a different investment strategy.
  5. You may want to sell if your mutual fund’s expenses have been creeping up, if you inherited the fund, or if your broker sold you a fund with a high 12b-1 fee. High fund fees reduce your returns and make the fund less profitable than similar funds with lower expenses.
  6. In a volatile market, you may discover that you’re a more conservative investor than you imagined. If you can’t sleep at night, sell your fund.
  7. You pay taxes on your capital gains. If one of your mutual funds posts negative returns, consider selling the losing fund to offset your tax liabilities.
  8. If the fund increases by three or four times its original size in a short time period and its performance starts to decline, you may want to sell. As the fund keeps growing and growing, the professional money manager can’t invest in the securities he or she knows and loves best, so the fund may start to acquire poor or average-performing assets.
  9. Consider your needs. If you purchased the fund for a specific purpose and your life circumstances change, you should sell the fund and purchase one that meets your needs — even if the fund is doing well.

legal disclaimer

1) Our website is not responsible for the information contained by this article as well for any and all copyright infringements by authors and writers. E-articles is a free information resource. If you suspect this article for any copyright infringements, please read the Terms of service and contact us to investigate the problem.
2) The E-articles directory team is not responsible for inaccuracies, falsehoods, or any other types of misinformation this tutorial may contain and will not be liable for any loss or damage suffered by a user through the user's reliance on the information gained here. Please read the Terms of service

Useful tools and features

Translate this article to...    Send this article to you or to a friend

Link to this article from your page   
If you like this article (tutorial), please link to it from your web page using the information above. Linking to this page, this is the only way to help us improve our service, the same time providing your visitors with a way to improve their online experience.

related articles

1. ECNs ~ It`s Not Your Grandfather`s Market Anymore
Recent changes in SEC regulations and technology have transformed how investors interact with the stock market. I explain these changes in the following sections, and I show you how these changes enable online investors to make more money on their investments. In the following sections, you gain an understanding of what happens after you click your mouse button to execute an online trade. You also discover how you can avoid hidden transaction costs by using an electronic communications network (ECN) and how you benefit from ECNs ...

2. Mutual Fund Basics
Over the years, the stock market has outperformed any other investment. Unlike a mutual fund, however, individual investors frequently can’t purchase a large number of different securities to diversify their investment risk. Buying shares in a mutual fund solves this problem. When you invest in a mutual fund, the diversity of the portfolio reduces the risk of losing your total investment. Selecting the right fund may be difficult, but you can find plenty of online help. Assume that you have $1,000 to inves...

3. How to Screen Mutual Funds Online
The Internet provides a variety of mutual fund screening tools that sort thousands of mutual funds by criteria that you select. For example, you may want one type of fund for your children’s education — something long term because you don’t need the money for 10 to 20 years — and a different fund for your retirement to help you reduce your current tax liabilities. With these online screening tools, you can evaluate several funds that meet your financial needs. Most of the stock-screenin...

4. Advantages and Disadvantages of Mutual Funds
As a general rule, the first palce to start analyzing a fund is by by comparing its expense ratio to similar funds. All funds have fees and expenses, but the amounts vary. In addition to sales and redemption fees, the mutual fund’s prospectus indicates the fund’s management and administration expenses. The fund’s investment advisor generally receives 0.5 to 1.0 percent of the fund’s average daily net assets. Administrative expenses include legal, auditing, and accounting costs, along with the f...

5. Buying Mutual Funds Online Using an Online Broker
You have many choices in how you purchase mutual funds. In addition to purchasing directly from the mutual fund company, you can purchase mutual funds through registered representatives of banks, trust companies, stockbrokers, discount brokers, and financial planners. To purchase mutual funds via the Internet, go to an online broker’s Web site. (I list a few examples later in this section.) Register by completing the online application form. You have to provide the same information you normally provide f...

6. What you have to know to determine the fair value of a stock and the right price
You can use several methods to determine the fair value of a stock. Throughout the following sections, I discuss three of the more popular methods of determining the right price for a stock: Fundamental analysis Technical analysis Market timing Valuing securities is important to your financial health. Stocks are more difficult to value than bonds. Bonds have a limited life and a stated payment rate. Common stocks don’t have a limi...

7. Researching a Company`s SEC Filing
In the United States, publicly traded companies are required to file business and financial information with the Securities and Exchange Commission (SEC). These reports are entered into a government-sponsored database called EDGAR (www.sec.gov), which stands for Electronic Data Gathering, Analysis, and Retrieval. The SEC’s EDGAR service provides downloadable data that can be accessed by individual investors. You also can save SEC reports on a disk and read them at a later time. One disadvantage of this free ser...

8. How to Choose the Best Stock for the Right Goal
Selecting your own stocks can be hard work. The exciting thing is that the Internet has much of the information you need, and most of this information is free. With the power of your computer, you can utilize Internet data to gain real insight. As you start to determine which stocks you’re interested in, you should be aware of the different types of stocks. Stocks have distinct characteristics, and as general economic conditions change, they behave in special ways. Write a short list of your financia...

9. What Are Stocks
When you buy shares of a company, you purchase part ownership in that company. As a shareholder, you also expect to receive capital appreciation — the difference between your purchase price and the market price of your shares — on your investment. If the company prospers, your shares of stock increase in value. If company performance declines, the market value of your shares also decreases. Shareholders are the owners of corporations. If you buy just one share in a company, you are a sharehol...

10. The differences between open~end and closed~end mutual funds
An open-end mutual fund has an unlimited number of shares. You can buy these shares through either the mutual fund company or your broker. The Securities and Exchange Commission (SEC) requires that each mutual fund company calculate the NAV (net asset value) of each fund every day at the close of business. A closed-end mutual fund is a hybrid: part mutual fund and part stock. A closed-end mutual fund is a publicly traded investment company with a limited number of share...