Mutual Funds: When To Sell

BOSTON (WBZ-AM) -- Kenny Rogers sings “You've got to know when to hold 'em, and know when to fold 'em.” 

So, when do you sell your mutual fund?  The number one reason to sell is when your goals or objectives are met and you need the dollars to pay for the goal.

As you are getting closer to reaching your goals you should be thinking about changing the asset allocation of the investment.

For example, your son is a sophomore in high school, college is only 2½ years away. It's a good idea to begin to sell some of the stock mutual funds over the next couple of years so you have at least the first and the second year’s tuition in cash.

Still another reason to sell your mutual fund is if it is under performing the benchmarks and its peers. Compare those one-year, 3-year and 5-year performance numbers. If it doesn't make it, you might want to cut it from the portfolio. But one poor year for a very good fund is not enough to sell in my mind.

But be careful here. If it is not in your retirement account selling will trigger a taxable event.

Consider selling if there are legal problems with the mutual fund company or your particular mutual fund or the fund managers. If the fund manager leaves, or the fund has grown so large it basically has become an index fund might be a reason to sell.

Morningstar reports will also help here by listing the manager’s education and experience and tenure.

Also utilize newsletters for research on funds. They make buy and sell recommendations and back it up with research.

Newsletters I like: Jim Lowell’s Fidelity Investor. Another good newsletter for Fidelity funds is the Fidelity Monitor and Insight. For the Vanguard investor there is Dan Wiener’s, The Independent Adviser for Vanguard Investors. 

The Money Letter also sits on my desk. Check out the Mutual Fund Observer newsletter for research on your funds as well.

Money magazine and Kiplinger’s Personal Finance magazine almost always have articles about mutual funds they would recommend. Check them out at your local library. The library may also have some other tools you can use in your research; newspapers such as the Wall Street Journal, Morningstar, Value Line and Barron’s.