When To Buy And Sell
“It is important to remember that you will never be
able to always be in the number one mutual fund, and I definitely
don’t recommend that you jump from fund to fund in search
of large profits.”
- Allyson Lewis, author of
The Million Dollar Car and $250,000 Pizza
Most experts will advise you to select your mutual fund(s)
carefully to meet your goals, and then hold onto them for
the long term. However, the following are a few reasons why
you may want to consider selling fund shares prematurely:
Change in Investment Strategy: If your fund manager
suddenly starts buying up the latest “hot investments”
without regard to the fund’s long-term objective or criteria
regarding its holdings.
Change in Personal Objective: If your personal circumstances
have changed, and it’s necessary to readjust your portfolio
to meet your new goals. For example, as you grow older and
approach retirement, if you have need for emergency cash,
or if you begin earning significantly more income and need
to find more tax-sheltered investments.
Change in Asset Allocation: Due to a substantially
better performance in one asset class over another--such as
the recent bull market in stocks--your portfolio's asset allocation
may become lopsided. It may be wise to rebalance your mutual
fund portfolio on a regular basis to maintain your original
allocations among stocks, bonds, and cash.
Change in Management: If you originally purchased
a fund because you liked the manager, you may want to consider
selling if he or she leaves to manage a competitor fund. However,
it’s a good idea to hold onto the original fund for at
least 18 months to give the new manager a chance to prove
him or herself.
Change in Policy: Should a fund adopt a policy that's
not in your best interest, such as raising fees or changing
the fund’s investment objective, it may be a good time
to sell.
Change in Fund Size: Sometimes a fund may receive
more assets than it has investment prospects, so the fund
manager should close the fund to new investors. If not, the
manager may be getting too greedy, and his securities selections
may no longer measure up to previous standards.
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